Resources Connection's Q3 2026 Call: Revenue Guidance Slides, AI's Role Contradicts Prior Optimism

Date of Call: Apr 8, 2026

Financials Results

• Revenue: $107.9M, down 19.6% YOY on a same-day constant currency basis
• Gross Margin: 35.7%, up 60 basis points compared to 35.1% in the prior year quarter

Guidance:

• Q4 revenue expected in the range of $104 million-$109 million, representing a decline of about 16% YOY on an organic constant currency same-day basis.
• Q4 gross margin expected between 36.5%-37.5%.
• Q4 run rate SG&A expenses expected in the range of $39 million-$41 million.
• Non-run rate and non-cash expenses expected in the range of $13 million-$15 million.

Business Commentary:

Revenue Performance and Strategic Outlook:

• RGP reported consolidated revenue of $107.9 million for Q3, representing a 19.6% decline on a same-day constant currency basis compared to the prior year.
• The company expects revenue growth in fiscal year 2027, with the CEO confident that investments in new hires and leadership will drive this growth, particularly in the latter half of the fiscal year.

Cost Management and SG&A Reduction:

• The company's run rate SG&A expenses were $39.4 million, a 10% improvement compared to $43.7 million in the prior year quarter.
• This reduction was primarily due to structural headcount reductions and disciplined spending across travel, occupancy, and professional services, enabling reinvestment into growth areas.

On-Demand Talent Segment Focus:

• The On-Demand Talent segment reported revenue of $40.9 million, a decline of 16.3% year-over-year.
• Despite the decline, the segment improved its margin to 7% from 5.5% due to higher growth margins, improved average bill rates, and cost discipline, reflecting a strategic refocus on key skills like ERP, finance transformation, and AI.

Consulting Segment Challenges and Integration:

• The Consulting segment's revenue was $36.9 million, down 32.5% year-on-year, impacting its margin to 4.6% from 11.2%.
• The decline is attributed to longer sales cycles and integration efforts of legacy consulting units, with expected improvements as the integration is completed by fiscal year-end.

AI and Automation Impact:

• The company is actively engaging with clients on AI initiatives, ranging from data preparation to implementation, viewing AI as a tailwind.
• The appointment of a Chief Artificial Intelligence Officer is aimed at building real AI capabilities, enhancing service offerings, and driving future growth.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated, 'my optimism regarding the future of our business continues to grow' and 'we expect to do so through focused execution on our strategic priorities.' Management expressed confidence in revenue growth for fiscal 2027, citing progress on strategic priorities and strong balance sheet.

Q&A:

• Question from Alex Hassan (J.P. Morgan): Just to confirm, there was no M&A revenue in the quarter, correct? Jen, can you elaborate on what the guide calls for on a constant currency same-day organic basis for the May quarter?
  Response: Confirmed no M&A revenue in the quarter. Q4 guidance implies a ~16% YOY decline on an organic constant currency same-day basis.

• Question from Alex Hassan (J.P. Morgan): When it comes to visibility into the long run return to growth of the business, how much do you guys think you have the muscle in place right now to make that forecast? When do you think there might be a pivot we might be looking for.
  Response: Confident fiscal 2027 will see growth over 2026, driven by current investments and client conversations, with growth more prevalent in latter half of fiscal year.

• Question from Joe Gomes (Noble Capital): Maybe give us a little idea of what that timing of that ramp-up period is. Are we talking one quarter, two quarters? Where does that stand?
  Response: Expect new hires/promotions to have maturation periods of 6 to 9 months, with revenue growth likely in latter two quarters of fiscal 2027.

• Question from Joe Gomes (Noble Capital): What needs to happen? Do we need to see an upswing in the overall market? Do we just need to see RGP start to take more share of wallet from existing customers? I mean, what are you kind of counting on when you’re saying you’re confident we’ll see revenue growth in 2027 over 2026?
  Response: Growth depends on maintaining current market conditions, continuing to add people, have conversations at current pace, and win opportunities, leading to more revenue.

• Question from Joe Gomes (Noble Capital): Given where the stock is these days and given the cash and the authorized buyback, what’s your thought process on when you would look to step into the market and maybe repurchase some shares here?
  Response: Assessing holistic impact of cost actions and reinvestment; shares are attractive, but will begin buybacks when ready.

• Question from Kartik Mehta (North Coast Research): As you look over the next 12-24 months, and maybe as you look at the current pipeline, is AI a tailwind for you, a headwind for you, or neutral at this point in time?
  Response: AI is a tailwind, both through internal efficiency and client services ranging from data preparation to implementation.

• Question from Kartik Mehta (North Coast Research): As you look at your SG&A, are we at a trough or kind of at a stability level for SG&A?
  Response: Nearing stability; reinvestment will cause slight elevation in SG&A in Q1 FY27, with offset from cost savings, expecting improved operating leverage as revenue recovers.

• Question from Kartik Mehta (North Coast Research): Any other portfolio actions you anticipate over the next 12-24 months?
  Response: No specific actions in process; simplification and review of service areas and delivery will continue.

• Question from Alex Sinatra (Baird): I was just wondering, you mentioned in the press release, that there’s been some reduced demand in traditional finance roles, related to the adoption of AI and automation... Just kind of wondering if we could get a little bit more detail on that, what kind of negative impact you’re seeing.
  Response: Consistent with last quarter, no acceleration; reduced demand for operational accounting roles due to AI adoption, but overall market steady.

• Question from Alex Sinatra (Baird): In terms of the sale of Citric, I was just kind of wondering how much you expect to net from that, not just the revenue, but on a margin perspective, how that’s expected to impact you.
  Response: Citric revenue ~$9M annually; disposition will have no material impact on profitability.

Contradiction Point 1

Revenue Growth Guidance and Timing

Guidance for organic revenue growth shifts from stability to a significant decline, changing the expected trajectory for the business.

Alex Hassan (J.P. Morgan) - Alex Hassan (J.P. Morgan)

2026Q3: For Q4, the revenue guidance at the high end of the range implies a ~16% year-over-year decline on an organic, constant currency, same-day basis. - [Jen Rue](CFO)

Was there no M&A revenue in the quarter, and can you elaborate on the guide's expectations for the May quarter on a constant currency same-day organic basis? - Judson Lindley (JPMorgan Chase & Co)

2026Q1: Same-day constant currency revenue is down 16% year-over-year. - [Jennifer Ryu](CFO)

Contradiction Point 2

AI's Impact on Client Decision-Making and Project Delays

Contradiction on whether AI causes client decision delays, shifting from a focus on experimentation to a direct benefit.

Kartik Mehta (North Coast Research) - Kartik Mehta (North Coast Research)

2026Q3: AI is currently a tailwind. It benefits RGP by... Creating service opportunities for clients... - [Roger Carlile](CEO)

Is AI a tailwind, headwind, or neutral for the next 12-24 months and current pipeline? - Kartik Mehta (Northcoast Research)

20260108-2026 Q2: AI is not a major cause of decision delay. Clients are more focused on experimentation and understanding... - [Roger Carlile](CEO) & [Bhadresh Patel](CFO)

Contradiction Point 3

Characterization of AI's Current Role and Impact

Contradiction in describing AI's impact as solely a tailwind versus acknowledging potential disruptions to certain roles.

Kartik Mehta (North Coast Research) - Kartik Mehta (North Coast Research)

2026Q3: AI is currently a tailwind. It benefits RGP by... - [Roger Carlile](CEO)

Will AI be a tailwind, headwind, or neutral over the next 12-24 months considering the current pipeline? - Mark Marcon (Robert W. Baird)

20260108-2026 Q2: AI/automation is most impacting operational, transactional, and repeatable roles... This is the earliest stage of impact... - [Roger Carlile](CEO) & [Bhadresh Patel](CFO)

Contradiction Point 4

AI's Impact on Traditional Roles and Market Conditions

The assessment of market conditions and AI's impact evolves from a stable, consistent trend to a more specific and acknowledged headwind.

Alex Sinatra (Baird) - Alex Sinatra (Baird)

2026Q3: Conditions are consistent with last quarter and have not accelerated. The reduced demand is primarily for operational accounting roles. The overall service market remains steady. - [Roger Carlile](CEO)

What is the negative impact of reduced demand in traditional finance roles due to AI/automation? - Joseph Gomes (NOBLE Capital Markets, Inc.)

2026Q1: The macro environment remains 'choppy' and uncertain, with little change in client spending appetite over the past year. - [Kate Duchene](CEO)

Contradiction Point 5

Organic Revenue Growth Expectations

Guidance for organic growth shifts from stability to a significant decline, indicating a major change in business outlook.

Alex Hassan (J.P. Morgan) - Alex Hassan (J.P. Morgan)

2026Q3: For Q4, the revenue guidance at the high end of the range implies a ~16% year-over-year decline on an organic, constant currency, same-day basis. - [Jen Rue](CFO)

Confirming there was no M&A revenue in the quarter, can you elaborate on the guide's expectations for the May quarter on a constant currency same-day organic basis? - Mark Steven Marcon (Robert W. Baird & Co. Incorporated)

2025Q4: Stability is expected in the On-Demand segment similar to Q4... The stability in On-Demand is on a constant currency, same business day basis. - [Jennifer Y. Ryu](CFO)