Resources Connection's Q1 2026: Contradictions Emerge on Pricing Pressures, Client Behavior, and Revenue Guidance

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $120.2M; same-day constant currency down 13.9% YOY; above outlook range
• Gross Margin: 39.5%, up 300 bps YOY; above high end of outlook

Guidance:

• Q2 revenue expected at $115–$120M; early Q2 weekly run-rate stable vs Q1.
• Q2 gross margin outlook 38–39% (Thanksgiving holiday will weigh vs Q1).
• Q2 SG&A run rate expected at $43–$45M, reflecting recent cost reductions.
• About $5M of Q2 non-run-rate/non-cash expenses, including ~$2M restructuring.
• Europe & Asia-Pacific expected to remain strong; on-demand and consulting trends similar to Q1 pending pipeline conversions.
• Macro remains choppy; potential incremental disruption from a U.S. government shutdown.
• October reduction in force targets ~$6–$8M in annualized cost savings.

Business Commentary:

* Revenue Performance: - Resources Connection Inc. (RGP) reported revenue of $120.2 million for Q1, exceeding their outlook range. - The revenue growth was driven by strong performance in Europe and Asia-Pacific, and growth in revenue from the top 10 clients.

• Gross Margin Improvement:
• RGP achieved a gross margin of 39.5%, which was significantly better than their outlook range.

• The improvement was attributed to a higher average bill rate, a broader pay bill spread, and a reduction in employee benefit costs.

• Consulting Segment Growth:

• Consulting segment revenue declined year-over-year, but achieved higher bill rates and utilization compared to the previous year.

• The improved bill rates reflect client demand for specialized solutions and support the company's value-based pricing initiative.

• Pipeline Momentum:

• RGP's pipeline returned to growth during the quarter, with increased activity in CFO advisory and digital transformation services.

• This growth is driven by the company's integrated go-to-market strategy and targeted investments in leadership and services.

• Cost Management and Optimization:

• RGP realized a 7% improvement in enterprise run rate SG&A expense, driven by lower management compensation and reduced travel and occupancy costs.
• This improvement is part of ongoing efforts to streamline the organizational structure, embrace automation, and evaluate functions to ensure strategic alignment.

Sentiment Analysis:

• Management beat internal outlook on revenue, gross margin, and SG&A, and posted 300 bps YOY gross margin improvement. However, they emphasized a choppy, slow-moving demand environment and guided to revenue stability rather than growth for Q2 with risks from a potential U.S. government shutdown.

Q&A:

• Question from Jessica Luce (North Coast Research): What are you seeing in pricing trends—any pressure by business?
  Response: Staffing rates are steady; consulting faces pressure but net-new projects support higher rates, with focus shifting away from low-value operational accounting to higher-value ERP/data/supply chain/digital work.

• Question from Jessica Luce (North Coast Research): How much of the pipeline is from cross-selling?
  Response: No specific mix disclosed; cross-sell momentum is increasing with more $1M+ deals entering the pipeline.

• Question from Mark Steven Marcon (Robert W. Baird & Co. Incorporated): Can you break out the Q2 revenue guide by segment, particularly consulting and on-demand?
  Response: Europe/Asia-Pacific should remain strong or improve; on-demand and consulting trends similar to Q1, dependent on timing of late-stage pipeline conversions.

• Question from Mark Steven Marcon (Robert W. Baird & Co. Incorporated): Any U.S. regional differences for on-demand and consulting?
  Response: Demand is strongest on the West Coast and in the Southeast, with consistent interest across CFO advisory and digital transformation.

• Question from Judson Garrett Lindley (JPMorgan Chase & Co.): What drove the gap between same-day constant currency and reported revenue growth—FX vs business days?
  Response: The gap was primarily business day impact; FX was about one-third of the business day impact, with one fewer business day vs last year.

• Question from Judson Garrett Lindley (JPMorgan Chase & Co.): Any acquired revenue contribution, and the same-day constant currency decline implied by Q2 guide?
  Response: Minimal inorganic contribution in Q1; at the top end of Q2 guidance, same-day constant currency revenue is down ~16% YOY.

• Question from Joe Gomes (Noble Capital Markets Inc.): How has client spending appetite changed over the past year?
  Response: Appetite remains choppy and timing-driven; work is progressing in digital finance/ERP/AI/data, but conversion speed through the pipeline is key.

• Question from Joe Gomes (Noble Capital Markets Inc.): What have the new board members added?
  Response: A private-equity lens to optimize profitability and operating-transformation expertise to sharpen incentives and cross-team collaboration.