Resources Connection Inc.
10/08/2025 | Press release | Distributed by Public on 10/08/2025 15:11
Quarterly Report for Quarter Ending August 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for three months ended August 30, 2025 should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended May 31, 2025 filed with the Securities and Exchange Commission ("SEC").
Forward-Looking Statements
This discussion and analysis contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, expectations regarding our operating segments, expectations regarding the macroeconomic environment, expected costs and liabilities, business strategies, growth strategies and initiatives, future revenues and future performance, are forward-looking statements. Such forward-looking statements may be identified by words such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "forecast," "future," "intends," "may," "plans," "potential," "predicts," "remain," "should," "strategy," "target," or "will" or similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would," or the negative of these terms or other comparable terminology. In this Quarterly Report on Form 10-Q, such statements include statements regarding our growth, operational and strategic plans.
Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, these statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those expressed or implied by these forward-looking statements. Risks and uncertainties include, but are not limited to, the following: risks related to an economic downturn or deterioration of general macroeconomic conditions, potential adverse effects to our and our clients' liquidity and financial performances from bank failures or other events affecting financial institutions, the highly competitive nature of the market for professional services, risks related to the loss of a significant number of our consultants, or an inability to attract and retain new consultants, the possible impact on our business from the loss of the services of one or more key members of our senior management or key sales professionals, risks related to potential significant increases in wages or payroll-related costs, our ability to secure new projects from clients, our ability to achieve or maintain a suitable pay/bill ratio, our ability to compete effectively in the competitive bidding process, risks related to unfavorable provisions in our contracts which may permit our clients to, among other things, terminate the contracts partially or completely at any time prior to completion, our ability to realize the level of benefit that we expect from our restructuring initiatives, risks that our recent digital expansion and technology transformation efforts may not be successful, our ability to build an efficient support structure as our business continues to grow and transform, our ability to grow our business, manage our growth or sustain our current business, our ability to serve clients internationally, additional operational challenges from our international activities, possible disruption of our business from our past and future acquisitions, the possibility that our recent rebranding efforts may not be successful, our potential inability to adequately protect our intellectual property rights, risks that our computer hardware and software and telecommunications systems are damaged, breached or interrupted, risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on our reputation, results of operations or financial condition, our ability to comply with governmental, regulatory and legal requirements and company policies, the possible legal liability for damages resulting from the performance of projects by our consultants or for our clients' mistreatment of our personnel, risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations, the possible adverse effect on our business model from the reclassification of our independent contractors by foreign tax and regulatory authorities, the possible difficulty for a third party to acquire us and resulting depression of our stock price, the operating and financial restrictions from our credit facility, risks related to the variable rate of interest in our credit facility, the possible impact of activist shareholders, the possibility that we are unable to or elect not to pay our quarterly dividend payment, and other factors and uncertainties as are identified in our most recent Annual Report on Form 10-K for the year ended May 31, 2025, which was filed on July 28, 2025 ("Fiscal Year 2025 Form 10-K") and our other public filings made with the SEC (File No. 0-32113). Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not intend, and undertake no obligation, to update the forward-looking statements in this filing to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, unless required by law to do so.
References in this filing to "Resources Global Professionals," the "Company," "we," "us," and "our" refer to Resources Connection, Inc. and its subsidiaries.
Overview
Resources Global Professionals ("RGP," "we" or "us") is a global professional services firm based in Dallas, Texas (with offices worldwide) focused on delivering flexible and high-impact solutions to businesses through three integrated offerings, on-demand resourcing, strategic and execution consulting, and fully outsourcing services. As a trusted human capital partner for our clients, we provide CFOs and other C-Suite leaders with the flexibility to solve today's most pressing challenges. Our core capabilities span Enterprise Strategy & Operational Performance; Finance & Accounting; Digital, Technology & Data; and Governance, Risk & Compliance. We attract top-caliber professionals with in-demand skill sets who seek a workplace environment characterized by choice and control, collaboration and human connection. The trends in today's marketplace favor flexibility and agility as businesses confront transformation pressures and skilled labor shortages in the face of protracted economic uncertainty. Our engagements are designed to leverage a combination of bench and agile talent that are highly experienced to deliver practical solutions and more impactful results.
Facing a tough market in fiscal 2025, we made deliberate choices to adapt. During the first quarter of fiscal 2025, we reorganized our business into distinct business units to establish more targeted strategies, enhance execution focus and create more brand clarity in the market place and have since operated under the following business units: (i) On-Demand Talent, (ii) Consulting, (iii) Europe & Asia Pacific, (iv) Outsourced Services, and (v) Sitrick (disclosed as "All Other"). We evolved and streamlined our consulting practices, honing in on two areas where the need and opportunities are robust: CFO Advisory, serving CFOs' needs across people, process and technology, and Digital, Data and Cloud where we expanded our capabilities in cloud platform implementation, data strategy and analytics, AI adoption and readiness, and enterprise digital transformation, through strategic acquisitions. Furthermore, we made meaningful progress in fiscal 2025 on improving bill rates and reducing costs. Finally, we completed our technology modernization effort in our largest region, North America, which positions us for more operational efficiency as we head into fiscal 2026.
Fiscal 2026 Strategic Focus Areas
Building upon the foundation we established in fiscal 2025, we continue to execute the following enterprise growth drivers in fiscal 2026:
•Expand cross-sell opportunities through our diversified services platform;
•Optimize our high-growth solutions and evolve our talent strategy;
•Further leverage value-based pricing; and
•Drive improvement in cost structure.
Expand cross-sell opportunities through our diversified services platform - We offer a unique blend of services in On-Demand Talent, Consulting, and Outsourced Services, enabling high flexibility and high impact solutions for enterprises worldwide. This unique model is designed to meet clients' evolving needs in a disrupted business environment. Our consulting capability provides us with deeper visibility into our clients' transformation agendas to drive greater opportunities for our On-Demand execution capabilities, while our agile talent base within our On-Demand business provides greater financial flexibility and better skill set alignment for our Consulting business. In our Outsourced Services business, we are expanding Countsy's total addressable market beyond the start-up ecosystem to serve the finance, accounting and human resources needs surrounding spin-outs and carve-outs. In fiscal 2026, we will be focused on broadening client relationships by cross-selling across our diversified service offerings and introducing complementary solutions as client needs evolve. We believe this will enable us to deepen our partnerships with CFOs and business leaders, strengthen client retention, and increase wallet share while positioning the Company as a long-term, trusted partner for transformation and performance improvement.
Optimize our high-growth solutions and evolve our talent strategy - In the volatile and rapidly shifting global economic environment, CFOs need partners who combine financial expertise with flexibility. We will maintain our commitment to building strong relationships with CFOs, who have historically been the primary buyers of our services, to support their organizations' transformation journeys with specialized expertise, high-value consulting, and integrated outsourced delivery. The core solutions we will continue to build, deepen and optimize are: enterprise resource planning ("ERP") and cloud finance systems modernization, financial planning and analysis enhancement, accounting close process optimization, SEC compliance, post acquisitions integration, enterprise risk management, data strategy and analytics, AI adoption and enterprise digital transformation. Concurrent to evolving our solutions to meet market demand, we will also
be keenly focused on evolving our talent strategy to modernize and refresh the skillset in our consultant base, both bench and agile, to serve our clients across On-Demand or Consulting engagements.
Further leverage value-based pricing- Building on the progress we made in fiscal 2025, we will further advance our value-based pricing strategy to improve bill rates and pricing leverage, particularly in the Consulting business, as we pursue larger-scale, higher-value engagements that deliver measurable impact for clients.
Drive improvement in cost structure- In the face of persistent macro-economic uncertainty and headwinds on client demand, we have prioritized reducing our cost structure and maintaining ongoing cost discipline to deliver improved profitability. We expect to leverage our newly implemented technology to achieve further operating efficiencies. In addition, we will continue to assess and optimize resource allocation across the business to improve profitability.
Market Trends and Uncertainties
Uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets, fluctuations in currency exchange rates, recent government and policy changes implemented in the United States, and tariff actions and uncertainties related to trade wars have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which has adversely impacted our financial results. While we are not able to fully predict the potential impact, we continue to see caution in professional services spending within our client base. If these conditions or impacts persist or if a prolonged economic downturn or recession develops, it could result in a further decline in billable hours and negatively impact our bill rates which would adversely affect our financial results and operating cash flows.
Critical Accounting Policies and Estimates
The following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 - Summary of Significant Accounting Policiesin the Notes to Consolidated Financial Statements included in Item 8 of Part II of our Fiscal Year 2025 Form 10-K, and in Note 2 - Summary of Significant Accounting Policiesin the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading "Critical Accounting Policies and Estimates" in Item 7 of Part II of our Fiscal Year 2025 Form 10-K.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by or calculated in accordance with GAAP. A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results:
•Same-day constant currency revenue is adjusted for the following items:
◦Currency impact. In order to remove the impact of fluctuations in foreign currency exchange rates, we calculate same-day constant currency revenue, which represents the outcome that would have resulted had exchange rates in the current period been the same as those in effect in the comparable prior period.
◦Business days impact. In order to remove the fluctuations caused by comparable periods having a different number of business days, we calculate same-day revenue as current period revenue (adjusted for currency impact) divided by the number of business days in the current period, multiplied by the number of business days in the comparable prior period. The number of business days in each respective period is provided in the "Number of Business Days" section in the table below.
•EBITDA is calculated as net income (loss) before amortization expense, depreciation expense, interest and income taxes.
•Adjusted EBITDA is calculated as EBITDA excluding stock-based compensation expense, amortized ERP system costs, technology transformation costs, goodwill impairment, acquisition costs, gain on sale of assets, and restructuring costs. We also present herein Adjusted EBITDA at the segment level as a measure used to assess the performance of our segments. Segment Adjusted EBITDA excludes certain shared corporate administrative costs that are not practical to allocate. See Note 12- Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
•Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue.
Same-Day Constant Currency Revenue
Same-day constant currency revenue assists management in evaluating revenue trends on a more comparable and consistent basis. We believe this measure also provides more clarity to our investors in evaluating our core operating performance and facilitates a comparison of such performance from period to period.
The following table presents a reconciliation of same-day constant currency revenue, a non-GAAP financial measure, to revenue as reported in the Consolidated Statements of Operations, the most directly comparable GAAP financial measure, by segment (in thousands, except number of business days).
Revenue by Segment
| Three Months Ended | |||||||||||||||||||||||||||||
| August 30, 2025 | August 24, 2024 | ||||||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
| As reported (GAAP) | Currency impact | Business days impact | Same-day constant currency revenue | As reported (GAAP) | |||||||||||||||||||||||||
| On-Demand Talent | $ | 44,442 | $ | 120 | $ | (694) | $ | 43,868 | $ | 52,473 | |||||||||||||||||||
| Consulting | 43,641 | 114 | (673) | 43,082 | 55,025 | ||||||||||||||||||||||||
|
Europe & Asia Pacific
|
19,888 | (917) | (19) | 18,952 | 17,983 | ||||||||||||||||||||||||
| Outsourced Services | 9,994 | - | (156) | 9,838 | 9,491 | ||||||||||||||||||||||||
| All Other | 2,264 | - | (35) | 2,229 | 1,963 | ||||||||||||||||||||||||
| Total Consolidated | $ | 120,229 | $ | (683) | $ | (1,577) | $ | 117,969 | $ | 136,935 | |||||||||||||||||||
| Three Months Ended | |||||||||||
| Number of Business Days | August 30, 2025 | August 24, 2024 | |||||||||
| (Unaudited) | (Unaudited) | ||||||||||
|
On-Demand Talent (1)
|
64 | 63 | |||||||||
|
Consulting (1)
|
64 | 63 | |||||||||
|
Europe & Asia Pacific (2)
|
64 | 64 | |||||||||
|
Outsourced Services (1)
|
64 | 63 | |||||||||
|
All Other (1)
|
64 | 63 | |||||||||
(2)The business days in international regions represent the weighted-average number of business days.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin assist management in assessing our core operating performance. We also believe these measures provide investors with a useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period. The following table presents EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and includes a reconciliation of such measures to net loss and net loss margin, the most directly comparable GAAP financial measures (in thousands, except percentages).
| Three Months Ended | |||||||||||||||||||||||
|
August 30, 2025 |
% of
Revenue(1)
|
August 24, 2024 |
% of
Revenue(1)
|
||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||
|
Net loss
|
$ | (2,405) | (2.0 | %) | $ | (5,707) | (4.2 | %) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Amortization expense | 1,193 | 1.0 | % | 1,485 | 1.1 | % | |||||||||||||||||
| Depreciation expense | 348 | 0.3 | % | 540 | 0.4 | % | |||||||||||||||||
|
Interest income (expense), net
|
44 | - | % | (148) | (0.1 | %) | |||||||||||||||||
|
Income tax expense
|
477 | 0.4 | % | 1,054 | 0.8 | % | |||||||||||||||||
| EBITDA | (343) | (0.3 | %) | (2,776) | (2.0) | % | |||||||||||||||||
| Stock-based compensation expense | 2,281 | 1.9 | % | 1,561 | 1.1 | % | |||||||||||||||||
|
Amortized ERP system costs (2)
|
702 | 0.6 | % | - | - | % | |||||||||||||||||
|
Technology transformation costs (3)
|
- | - | % | 1,858 | 1.4 | % | |||||||||||||||||
|
Acquisition costs (4)
|
425 | 0.4 | % | 1,289 | 0.9 | % | |||||||||||||||||
|
Goodwill Impairment (5)
|
- | - | % | 3,855 | 2.8 | % | |||||||||||||||||
|
Gain on sale of assets (6)
|
- | - | % | (3,420) | (2.5) | % | |||||||||||||||||
|
Restructuring costs (7)
|
- | - | % | (47) | - | % | |||||||||||||||||
| Adjusted EBITDA | $ | 3,065 | 2.5 | % | $ | 2,320 | 1.7 | % | |||||||||||||||
(1)The percentage of revenue may not foot due to rounding.
(2)Amortized ERP system costs represent the amortization of capitalized technology transformation costs related to a newly implemented ERP system, which was recorded within selling, general, and administrative expenses on the Consolidated Statement of Operations.
(3)Technology transformation costs represent costs included in net loss related to the Company's initiative to upgrade its technology platform globally, including a cloud-based ERP system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.
(4)Acquisition costs primarily represent costs included in net loss related to the Company's business acquisition. These costs include transaction bonuses, cash retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 - Acquisitions in the Notes to Consolidated Financial Statements for further discussion.
(5)The effect of the goodwill impairment charge recognized during the three months ended August 24, 2024 was related to the Europe & Asia Pacific segment.
(6)Gain on sale of assets was related to the Company's sale of its Irvine office building, which was completed on August 15, 2024.
(7)Restructuring costs during the three months ended August 24, 2024 represent costs incurred in connection with the U.S Restructuring Plan, which was authorized in October 2023 and was substantially completed during fiscal 2024.
Our non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for revenue, net income (loss) or other measures of financial performance or financial condition prepared in accordance with GAAP for purposes of analyzing our revenue, profitability or liquidity. Further, a limitation of our non-GAAP financial measures is they exclude items detailed above
that have an impact on our GAAP reported results. Other companies in our industry may calculate these non-GAAP financial measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, these non-GAAP financial measures should not be considered a substitute but rather considered in addition to performance measures calculated in accordance with GAAP.
Results of Operations
The following table sets forth, for the periods indicated, our Consolidated Statements of Operations data. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue below (in thousands, except percentages).
|
Three Months Ended
|
|||||||||||||||||||||||
|
August 30, 2025 |
% of
Revenue (1)
|
August 24, 2024 |
% of
Revenue (1)
|
||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||
| Revenue | $ | 120,229 | 100.0 | % | $ | 136,935 | 100.0 | % | |||||||||||||||
| Cost of services | 72,760 | 60.5 | % | 86,948 | 63.5 | % | |||||||||||||||||
| Gross profit | 47,469 | 39.5 | % | 49,987 | 36.5 | % | |||||||||||||||||
| Selling, general and administrative expenses | 47,916 | 39.9 | % | 48,910 | 35.7 | % | |||||||||||||||||
|
Goodwill impairment
|
- | - | % | 3,855 | 2.8 | % | |||||||||||||||||
| Amortization expense | 1,193 | 1.0 | % | 1,485 | 1.1 | % | |||||||||||||||||
| Depreciation expense | 348 | 0.3 | % | 540 | 0.4 | % | |||||||||||||||||
| Loss from operations | (1,988) | (1.7 | %) | (4,803) | (3.5 | %) | |||||||||||||||||
| Interest expense (income), net | 44 | 0.1 | % | (148) | (0.1 | %) | |||||||||||||||||
| Other income | (104) | - | % | (2) | - | % | |||||||||||||||||
| Loss before income tax expense | (1,928) | (1.6 | %) | (4,653) | (3.4 | %) | |||||||||||||||||
| Income tax expense | 477 | 0.4 | % | 1,054 | 0.8 | % | |||||||||||||||||
| Net loss | $ | (2,405) | (2.0 | %) | $ | (5,707) | (4.2 | %) | |||||||||||||||
(1)The percentage of revenue may not foot due to rounding.
Consolidated Operating Results - Three Months Ended August 30, 2025 Compared to Three Months Ended August 24, 2024
Revenue.Revenue decreased $16.7 million, or 12.2%, to $120.2 million in the first quarter of fiscal 2026 from $136.9 million in the first quarter of fiscal 2025. On a same-day constant currency basis, revenue decreased by $19.0 million, or 13.9%. Billable hours decreased 14.3% year-over-year, primarily due to the choppy demand environment, as clients delay transformation projects amid continued global economic uncertainty and a softening labor market. Partially offsetting this decrease, average bill rates increased 2.2% year over year, reflecting the progress in our ongoing value based pricing initiative and a gradual shift to higher-value projects.
Cost of Services.Cost of services decreased $14.2 million, or 16.3%, to $72.8 million for the first quarter of fiscal 2026 from $86.9 million in the first quarter of fiscal 2025. The decrease in cost of services was primarily attributable to a 14.3% decline in billable hours as a result of reduced client spending as noted above, while the average pay rate remained steady during the first quarter of fiscal 2026compared to the first quarter of fiscal 2025.
Cost of services as a percentage of revenue was 60.5% for the first quarter of fiscal 2026 compared to 63.5% for the first quarter of fiscal 2025. The decreased percentage compared to the prior year quarter was primarily due to an improved pay/bill ratio and lower consultant costs, including reductions in medical insurance, employer payroll taxes, paid time off and holiday pay. We continue to seek improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.
The number of agile consultants on assignment during the first quarter of fiscal 2026 was 2,231 compared to 2,730 during the first quarter of fiscal 2025. The average number of salaried consultants during the first quarter of fiscal 2026 was 418 compared to 482 during the first quarter of fiscal 2025.
Selling, General and Administrative Expenses.Selling, general and administrative expenses ("SG&A") was $47.9 million, or 39.9% of revenue, for the first quarter of fiscal 2026 compared to $48.9 million, or 35.7% of revenue, for the first quarter of fiscal 2025. The $1.0 million decrease in SG&A year-over-year was primarily driven by a $2.4 million decrease in employee compensation and benefits costs following our restructuring activities in fiscal 2025, a $1.9 million decrease in technology transformation costs primarily associated with our technology implementation during fiscal 2025, a $1.1 million decrease related to business support costs including travel and entertainment, a $0.8 million decrease in acquisition related costs, and a $0.4 million decrease in occupancy expenses. These decreases were partially offset by a $3.4 million gain on the sale of the Irvine office building recorded during the first quarter of fiscal 2025 with no comparable activity occurring during the first quarter of fiscal 2026, a $0.9 million increase in professional services fees, a $0.7 million increase in stock-based compensation, and a $0.7 million increase in amortization of costs related to capitalized technology transformation costs. The remaining decrease was related to various general and overhead costs.
Management and administrative headcount was 667 at the end of the first quarter of fiscal 2026 and 765 at the end of the first quarter of fiscal 2025.
Goodwill Impairment.No goodwill impairment was recorded during the first quarter of fiscal 2026. During the first quarter of fiscal 2025, the Company completed a goodwill impairment analysis as part of its business segment reorganization. As a result of the analysis, a non-cash impairment charge of $3.9 million was recorded in the Europe & Asia Pacific segment during the first quarter of fiscal 2025. See Note 5 - Goodwill and Intangible Assetsin the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
Income Taxes.Income tax expense was $0.5 million, reflecting an effective tax rate of 24.7%, for the first quarter of fiscal 2026 compared to an income tax expense of $1.1 million, or an effective tax rate of 22.7%, for the first quarter of fiscal 2025. The income tax expense, driven primarily by an increase in the domestic and foreign valuation allowance in the first quarter of fiscal 2026 and the non-deductible tax adjustment on goodwill impairment in the first quarter of fiscal 2025, measured against consolidated pretax losses resulted in the negative effective tax rate in both quarters.
Due to the sensitivity of the estimated annual effective tax rate to minor changes in estimated annual pretax results, the Company determined that the discrete method, whereby the year-to-date actual effective tax rate is applied, is the appropriate approach in its current computation of the interim tax provision, as the use of the estimated annual effective tax rate would provide a distortive result.
There can be no assurance that our effective tax rate will remain constant in the future because of factors such as changes in valuation allowance positions of our deferred tax assets and liabilities or changes in tax law or tax rates in jurisdictions that we operate in. Based upon future economic outlook and operating results of certain jurisdictions, it is reasonably possible that the current valuation allowance positions of certain jurisdictions could be adjusted within the next 12 months.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. Among other changes, OBBBA makes permanent several expiring provisions from the Tax Cuts and Jobs Act of 2017, restores favorable tax treatment of various business provisions, and modifies the international tax regime. The legislation has varying effective dates, with certain provisions effective retrospectively starting January 1, 2025. The tax effects of the enacted legislation are reflected in the period of enactment ended August 30, 2025, and there was no material impact on our effective tax rate as of August 30, 2025. We will continue to monitor and assess the impact of OBBBA on our consolidated financial statements.
Comparability of Quarterly Results.Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that could affect our quarterly operating results are described in Part I, Item 1A of our Fiscal Year 2025 Form 10-K and our other public filings made with the SEC. Due to these and other factors, we believe quarter-to-quarter comparisons of our results of operations may not be meaningful indicators of future performance.
Operating Results of Segments
The Company's reportable segments are as follows:
•On-Demand Talent - provides businesses with a go-to source for bringing in experts when they need them, serving predominately the office of the CFO.
•Consulting - drives transformation across people, processes and technology across domain areas including finance, technology and digital, risk and compliance and operational performance.
•Europe & Asia Pacific - is a geographically defined segment that offers both on-demand and consulting services (excluding the digital consulting business, which is included in our Consulting segment) to clients throughout Europe & Asia Pacific.
•Outsourced Services - operating under the Countsy by RGP™ brand, this segment offers finance, accounting and human resource services provided to startups, spinouts and scale-up enterprises, utilizing a technology platform and fractional team.
•Sitrick - a crisis communications and public relations firm that provides corporate, financial, transactional and crisis communication and management services.
Each of these segments reports through separate segment managers to the Company's Chief Executive Officer and Chief Operating Officer, who are collectively designated as the CODMs for segment reporting purposes. The Company's reportable segments are comprised of On-Demand Talent, Consulting, Europe & Asia Pacific, and Outsourced Services. Sitrick does not individually meet the quantitative thresholds to qualify as a reportable segment. Therefore, Sitrick is disclosed under the "All Other" segment. Each of these segments represents a reporting unit for the purposes of assessing goodwill for impairment.
The following table presents our operating results by segment for the three months ended August 30, 2025 and August 24, 2024, respectively (in thousands). Revenue information by segment, on a GAAP basis and on a same-day constant currency basis, is set forth above under "Non-GAAP Financial Measures - Same Day Constant Currency Revenue."
| Three Months Ended | |||||||||||
|
August 30, 2025 |
August 24, 2024 |
||||||||||
| Adjusted EBITDA: | (Unaudited) | (Unaudited) | |||||||||
|
On-Demand Talent
|
$ | 4,422 | $ | 2,559 | |||||||
| Consulting | 5,045 | 7,753 | |||||||||
| Europe & Asia Pacific | 837 | 227 | |||||||||
| Outsourced Services | 2,330 | 1,394 | |||||||||
| All Other | 183 | (467) | |||||||||
|
Unallocated items (1)
|
(9,752) | (9,146) | |||||||||
| Adjustments: | |||||||||||
| Stock-based compensation expense | (2,281) | (1,561) | |||||||||
|
Amortized ERP system costs (2)
|
(702) | - | |||||||||
|
Technology transformation costs (3)
|
- | (1,858) | |||||||||
|
Acquisition costs (4)
|
(425) | (1,289) | |||||||||
|
Goodwill impairment (5)
|
- | (3,855) | |||||||||
|
Gain on sale of assets (6)
|
- | 3,420 | |||||||||
|
Restructuring cost (7)
|
- | 47 | |||||||||
| Amortization expense | (1,193) | (1,485) | |||||||||
| Depreciation expense | (348) | (540) | |||||||||
|
Interest (expense) income, net
|
(44) | 148 | |||||||||
|
Loss before income tax expense
|
(1,928) | (4,653) | |||||||||
|
Income tax expense
|
(477) | (1,054) | |||||||||
|
Net loss
|
$ | (2,405) | $ | (5,707) | |||||||
(1)Unallocated items are generally comprised of unallocated corporate administrative costs, including management and board compensation, corporate support function costs and other general corporate costs that are not allocated to segments.
(2)Amortized ERP system costs represent the amortization of capitalized technology transformation costs related to a newly implemented ERP system, which was recorded within SG&A expenses on the Consolidated Statement of Operations.
(3)Technology transformation costs represent costs included in net loss related to the Company's initiative to upgrade its technology platform globally, including a cloud-based ERP system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.
(4)Acquisition costs primarily represent costs included in net loss related to the Company's business acquisition. These costs include transaction bonuses, cash retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 - Acquisitions in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.
(5)The effect of the goodwill impairment charge recognized during the three months ended August 24, 2024 was related to the Europe & Asia Pacific segment.
(6) Gain on sale of assets was related to the Company's sale of its Irvine office building, which was completed on August 15, 2024.
(7) Restructuring costs during the three months ended August 24, 2024 represent costs incurred in connection with the U.S Restructuring Plan, which was authorized in October 2023 and was substantially completed during fiscal 2024.
Revenue by Segment
On-Demand Talent - Revenue in the On-Demand Talent segment declined by $8.0 million or 15.3%, to $44.4 million in the first quarter of fiscal 2026 compared to $52.5 million in the first quarter of fiscal 2025. On a same day currency basis, revenue decreased 16.4% in the first quarter of fiscal 2025. The decline was primarily due to lower demand for interim support amidst economic uncertainty as well as a softer and more stagnant labor market, with billable hours decreasing by 15.8% partially offset by a 0.4% (or 0.7% on a constant currency basis) increase in average bill rate.
Consulting- Revenue in the Consulting segment declined by $11.4 million or 20.7%, to $43.6 million in the first quarter of fiscal 2026 compared to $55.0 million in the first quarter of fiscal 2025. On a same day currency basis, revenue decreased 21.7% in the first quarter of fiscal 2025. The decline was primarily due to a 28.4% decrease in billable hours, partially offset by a 11.1% (or 11.4% on a constant currency basis) increase in the average bill rate largely as a result of the Company's value-based pricing initiative. As we continue to evolve our consulting business to deliver higher value, larger and more complex work, we have improved our ability to command higher bill rates; however, the sales cycle associated with such deal opportunities tends to be more elongated. As a result, revenue in the Consulting segment could be lumpy in the near term as we continue to execute our strategy in his part of the business.
Europe & Asia Pacific- Revenue in the Europe & Asia Pacific segment increased by $1.9 million or 10.6%, to $19.9 million in the first quarter of fiscal 2026 compared to $18.0 million in the first quarter of fiscal 2025. On a same-day constant currency basis, revenue increased 5.4% in the first quarter of fiscal 2025. The increase was primarily due to a 0.5% increase in billable hours and a 9.6% (or 4.6% on a constant currency basis) increase in the average bill rate. The increase in average bill rates was driven by the Company's value-based pricing initiative and a shift in geographic revenue mix towards Europe, where average bill rates are higher. Billable hours in Europe increased 21.0% year-over-year, primarily due to growing client demand and project expansions with key accounts, while billable hours in the Asia Pacific region decreased 2.6% primarily due to reduction in client spend and the competitive landscape in the region.
Outsourced Services- Revenue in the Outsourced Services segment increased by $0.5 million or 5.3%, to $10.0 million in the first quarter of fiscal 2026 compared to $9.5 million the first quarter of fiscal 2025. On a same-day constant currency basis, revenue increased 3.7% in the first quarter of fiscal 2025. The increase was primarily due to an increase in billable hours of 2.1%, partially offset by a 2.2% decrease in the average bill rates.
All Other- Revenue in the All Other segment increased by $0.3 million or 15.3%, to $2.3 million in the first quarter of fiscal 2026 compared to $2.0 million in the first quarter of fiscal 2025. On a same-day constant currency basis, revenue increased 13.6% in the first quarter of fiscal 2025. The increase was primarily due to an increase in billable hours and an average bill rate increase of 2.7%.
Adjusted EBITDA by Segment
On-Demand Talent - The On-Demand Talent segment's Adjusted EBITDA increased by $1.9 million or 72.8%, to $4.4 million for the first quarter of fiscal 2026, compared to $2.6 million for the first quarter of fiscal 2025. The increase is primarily attributed to a decrease in segment expenses of $3.4 million, partially offset by a decrease in gross profit of $1.6 million.
Consulting- The Consulting segment's Adjusted EBITDA decreased by $2.7 million or 34.9%, to $5.0 million for the first quarter of fiscal 2026, compared to $7.8 million for the first quarter of fiscal 2025. The decrease is primarily attributed to a decrease in gross profit of $3.2 million, which was partially offset by a decrease in segment expenses of $0.5 million.
Europe & Asia Pacific - The Europe & Asia Pacific segment's Adjusted EBITDA increased by $0.6 million or 268.7%, to $0.8 million for the first quarter of fiscal 2026, compared to $0.2 million for the first quarter of fiscal 2025. The increase is primarily attributed to an increase in gross profit of $0.7 million, partially offset by an increase in segment expenses of $0.1 million.
Outsourced Services- The Outsourced Services segment's Adjusted EBITDA increased by $0.9 million, or 67.1%to $2.3 million in the first quarter of fiscal 2026 compared to $1.4 million for the first quarter of fiscal 2025. The increase is primarily attributed to an increase in gross profit of $1.0 million, partially offset by an increase in segment expenses of $0.1 million.
All Other- The All Other segment's Adjusted EBITDA increased by $0.7 million or 139.2% to $0.2 million for the first quarter of fiscal 2026 compared to $(0.5) million for the first quarter of fiscal 2025. The increase is attributed to an increase in gross profit of $0.6 million and a decrease in segment expenses of $0.1 million.
Liquidity and Capital Resources
Our primary sources of liquidity are cash provided by operating activities, our senior secured revolving credit facility (as discussed further below) and historically, to a lesser extent, stock option exercises and ESPP purchases. While during the three months ended August 30, 2025, we did not generate positive cash flow from operations, we have historically generated positive cash flows from operations on an annual basis since inception. Our ability to generate positive cash flows from operations in the future will depend, at least in part, on global economic conditions and our ability to remain resilient during periods of deteriorating macroeconomic conditions and any economic downturns. As of August 30, 2025, we had $77.5 million of cash and cash equivalents, including $41.3 million held in international operations.
Prior to July 2, 2025, the Company had a revolving credit facility with Bank of America, N.A., pursuant to the terms of the credit agreement dated November 12, 2021 by the Company and Resources Connection LLC, as borrowers, and all of the Company's domestic subsidiaries, as guarantors, with the lenders that are party thereto and Bank of America, N.A. as administrative agent for the lenders (the "2021 Credit Facility").
On July 2, 2025, the Company, Resources Connection LLC, as borrowers, and all of the Company's domestic subsidiaries, as guarantors, entered into a credit agreement with the lenders that are party thereto and Bank of America, N.A. as administrative agent, L/C issuer and swingline lender (the "2025 Credit Facility"), and concurrently terminated the 2021 Credit Facility. The 2025 Credit Facility provides for a secured revolving loan, available in an amount up to the lesser of $50.0 million and a borrowing base formula tied to eligible receivables, which includes a $10.0 million sublimit for the issuance of standby letters of credit. The 2025 Credit Facility also includes an option to increase the amount of the revolving loan up to an additional $15.0 million. The 2025 Credit Facility will mature on November 30, 2029. The obligations under the 2025 Credit Facility are secured by substantially all assets of the Company, Resources Connection LLC and all of the Company's domestic subsidiaries.
Borrowings under the 2025 Credit Facility bear interest at a rate per annum of either, at the Company's election (i) Term SOFR (as defined in the 2025 Credit Facility) plus a margin ranging from 1.25% to 2.50% or (ii) the Base Rate (as defined in the 2025 Credit Facility), plus a margin of 0.25% to 1.50%, in either case, with the applicable margin depending on the Company's Consolidated EBITDA (as defined in the 2025 Credit Facility). The Company is also obligated to pay other customary facility fees for a credit facility of this size and type.
The 2025 Credit Facility is available for working capital and general corporate purposes, including potential acquisitions, dividend distribution and stock repurchases. Additional information regarding the 2025 Credit Facility is included in Note 7 - Long-Term Debt in the Notes to Consolidated Financial Statements included in Part I, Item I of this Quarterly Report on Form 10-Q.
On November 2, 2022, Resources Global Enterprise Consulting (Beijing) Co., Ltd, (a wholly owned subsidiary of the Company), as borrower, and the Company, as guarantor, entered into a RMB 13.4 million (USD $1.8 million based on the prevailing exchange rate on November 2, 2022) revolving credit facility with Bank of America, N.A. (Beijing) as the lender (the "Beijing Revolver"). The Beijing Revolver bears interest at a loan prime rate plus 0.80%. Interest incurred on borrowings will be payable monthly in arrears. As of August 30, 2025, the Company had no debt outstanding under the Beijing Revolver.
In addition to cash needs for ongoing business operations, from time to time, we have strategic initiatives that could generate significant additional cash requirements. Such costs primarily include software licensing fees and other costs in areas including change management and training. We believe our current cash, ongoing cash flows from our operations and funding available under our 2025 Credit Facility will provide sufficient funds for these initiatives. As of August 30, 2025, we have non-cancellable purchase obligations totaling $8.5 million, which primarily consist of payments
pursuant to the licensing arrangements that we have entered into: $4.0 million due during fiscal 2026; $3.1 million due during fiscal 2027; 1.5 million due during fiscal 2028; and zero due thereafter.
In addition, we pay a regular quarterly dividend to our stockholders, subject to approval each quarter by our Board of Directors. Most recently, on September 26, 2025, we paid a dividend of $0.07 per share of our common stock to stockholders of record at the close of business on August 29, 2025. Continuation of the quarterly dividend is at the discretion of the Board of Directors and depends upon our financial condition, results of operations, capital requirements, general business condition, contractual restrictions contained in the 2025 Credit Facility and other agreements, and other factors deemed relevant by our Board of Directors.
As described under "Market Trends and Uncertainties" above, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets, fluctuations in currency exchange rates, recent government and policy changes implemented in the United States, and tariff actions and uncertainties related to trade wars have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which have adversely impacted, and may continue to adversely impact, our financial results, operating cash flows and liquidity needs. If we are required to raise additional capital or incur additional indebtedness for our operations or to invest in our business, we can provide no assurances that we would be able to do so on acceptable terms or at all. Our ongoing operations and growth strategy may require us to continue to make investments in critical markets and further expand our internal technology and digital capabilities. In addition, we may consider making additional strategic acquisitions or initiating additional restructuring initiatives, which could require significant liquidity and adversely impact our financial results due to higher cost of borrowings. We believe that our current cash, ongoing cash flows from our operations and funding available under our 2025 Credit Facility will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months.
Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisitions, we may seek to sell additional equity securities, increase the use of our 2025 Credit Facility, expand the size of our 2025 Credit Facility or raise additional debt. In addition, if we decide to make additional share repurchases, we may fund these through existing cash balances or the use of our 2025 Credit Facility. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. Our ability to secure additional financing in the future, if needed, will depend on several factors. These include our future profitability and the overall condition of the credit markets. Notwithstanding these considerations, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.
Other than as described herein, there have been no material changes to our material cash requirements, including commitments for capital expenditures, described under the heading "Liquidity and Capital Resources" in Item 7, Part II of our Fiscal Year 2025 Form 10-K.
Operating Activities
Operating activities for the three months ended August 30, 2025 used cash of $7.8 million compared to $0.3 million of cash used for the three months ended August 24, 2024. The cash used in operations for the three months ended August 30, 2025 included a net loss of $2.4 million, offset by non-cash adjustments of $5.3 million. The cash used in operations was primarily due to changes in operating assets and liabilities, which amounted to a net cash outflow of $10.8 million, driven by a $15.8 million decrease in accrued bonuses, salaries and related obligations due to the timing of our pay cycle and the payout of the annual incentive compensation, a $1.5 million decrease in accounts payable and other accrued expenses and a $0.6 million decrease in other liabilities. These decreases were offset by a $5.7 million decrease in trade accounts receivable, a $0.8 million decrease in prepaid expenses and other current assets, a $0.6 million decrease in other assets, and a $0.2 million increase in prepaid income taxes.
In the three months ended August 24, 2024, cash used in operations was due to a net loss of $5.7 million, which was partially offset by non-cash adjustments of $6.0 million and net unfavorable changes in operating assets and liabilities of $0.6 million. These net unfavorable changes in operating assets and liabilities were driven by a $4.3 million decrease in trade accounts receivable, a $0.4 million increase in accrued salaries and related obligations, mainly due to the timing of our pay cycle and the payout of the annual incentive compensation during the three months ended August 24, 2024, and a $1.0 million increase in other liabilities. Offsetting these unfavorable changes were a $1.9 million increase in other assets largely related to the investments in our technology implementation, a $1.3 million decrease in accounts payable and other accrued expenses, and a $1.0 million increase in prepaid income taxes.
Investing Activities
Net cash used in investing activities was $0.1 million for the three months ended August 30, 2025 compared to $10.9 million for the three months ended August 24, 2024. Net cash used in investing activities for the three months ended August 30, 2025 was primarily related to $0.1 million of cash used for the development of internal-use software and acquisition of property and equipment.
Net cash used in investing activities was $10.9 million for the three months ended August 24, 2024 and was primarily related to $23.0 million of net cash used towards the acquisition of Reference Point, partially offset by $12.3 million of net proceeds from the sale of the Irvine office building.
Financing Activities
Net cash used in financing activities totaled $1.6 million for the three months ended August 30, 2025 compared to $7.7 million for the three months ended August 24, 2024. Net cash used in financing activities during the three months ended August 30, 2025 consisted of cash dividend payments of $2.3 million, which were partially offset by $1.1 million in proceeds received from ESPP share purchases.
Net cash used in financing activities totaled $7.7 million for the three months ended August 24, 2024 and consisted of $5.0 million to purchase 430,284 shares of common stock on the open market, and cash dividend payments of $4.7 million; these uses were partially offset by $2.0 million in proceeds received from ESPP share purchases.
Resources Connection Inc. published this content on October 08, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on October 08, 2025 at 21:12 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]