Resources Connection's 2026 Q1 Earnings Call: Contradictions Emerge on Sales Attrition, Cross-Selling, Tariffs, Pricing, and Client Spending

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

Date of Call: October 8, 2025

Financials Results

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

Guidance:

• Q2 revenue expected at $115–$120M; weekly run-rate largely stable vs Q1.
• Q2 gross margin expected at 38–39% (Thanksgiving adds one more U.S. holiday vs Q1).
• Q2 run-rate SG&A expected at $43–$45M; non-run-rate/noncash ~ $5M including ~$2M restructuring.
• Europe & Asia Pac expected to remain strong; On-Demand and Consulting trends similar to Q1.
• Potential U.S. government shutdown could add disruption.

Business Commentary:

* Strong Financial Performance Despite Macroeconomic Challenges: - RGP reported revenue of $120.2 million, exceeding their outlook, with a gross margin of 39.5%, a significant improvement from the prior year. - The company's performance was driven by a focus on cost efficiency, strategic pricing, and strong client engagement, particularly in CFO advisory and digital transformation.

• Revenue Growth in Europe and Asia Pacific:
• The Europe and Asia Pacific segment delivered 5% growth in revenue year-over-year, with higher bill rates and better run rates.

• This growth was attributed to a focus on strengthening multinational client relationships and expanding the local client base, particularly in areas like CFO advisory and digital transformation.

• Solid Pipeline and Client Engagement:

• RGP's pipeline showed a return to growth, driven by an increase in net new opportunities and effective extension management.

• This was directly linked to the company's efforts in sales execution, cross-practice collaboration, and enhancing the value proposition in high-demand areas such as ERP, data, and supply chain.

• Cost Management and Structural Improvements:

• The company's SG&A expenses were reduced by 7% from the prior year, driven by lower management compensation and other cost savings.
• These improvements were supported by strategic organizational redesign, streamlining processes, and leveraging automation and AI.

Sentiment Analysis:

• Results beat outlook: revenue $120.2M; gross margin 39.5% (up 300 bps YOY); SG&A $44.5M below plan. U.S. demand remains choppy with On-Demand (-16% YOY) and Consulting (-22% YOY) declines. Q2 guide calls for $115–$120M revenue and 38–39% gross margin with SG&A $43–$45M, indicating stability rather than a rebound; potential U.S. government shutdown noted as a risk.

Q&A:

• Question from Jessica (Northcoast Research): What are you seeing in pricing trends across businesses, and where is there pressure?
  Response: Staffing rates are steady; consulting faces pressure but net-new projects support higher value-based bill rates; pivoting away from lower-value operational accounting toward ERP, data, supply chain, and digital transformation.

• Question from Jessica (Northcoast Research): How much of the current pipeline is from cross-selling?
  Response: Pipeline of $1M+ opportunities is increasing via integrated sales and practice collaboration, with expected conversion improvement.

• Question from Mark Marcon (Robert W. Baird): Can you break out the Q2 revenue guide by segment, particularly consulting and on-demand?
  Response: Europe/Asia Pac should remain strong or improve; On-Demand and Consulting trends similar to Q1, with consulting dependent on timing of late-stage deal conversion.

• Question from Mark Marcon (Robert W. Baird): Any U.S. regional differences for On-Demand and Consulting?
  Response: Stronger demand on the West Coast and Southeast; focus across markets remains CFO advisory and digital transformation.

• Question from Mark Marcon (Robert W. Baird): Where is the new CFO Advisory leader based?
  Response: Northern Virginia (Washington, D.C. area).

• Question from Judson Lindley (JPMorgan): What drove the gap between same-day constant currency and reported revenue growth (FX vs business days)?
  Response: Mostly fewer business days; FX impact is about one-third of the business-day impact.

• Question from Judson Lindley (JPMorgan): Any acquired revenue in Q1, and what’s the same-day constant-currency decline implied by Q2 guidance?
  Response: Minimal inorganic impact in Q1; at the top end of Q2 guidance, year-over-year same-day constant-currency revenue decline is ~16%.

• Question from Joseph Gomes (NOBLE Capital Markets): How has client spending appetite changed over the past year?
  Response: Still choppy and uncertain; digital finance/ERP/AI work is progressing, with timing of pipeline conversion the key variable.

• Question from Joseph Gomes (NOBLE Capital Markets): What have the two new Board members contributed?
  Response: One brings a private equity lens to cost/efficiency; the other adds operating/transformation expertise emphasizing incentives and collaborative behaviors.