Resources Connection Inc (RGP) Q1 2025 Earnings Call Transcript Highlights: Revenue Decline ...
Total Revenue: $136.9 million, down 19% from the prior year quarter on a same-day constant currency basis.
Gross Margin: 36.5% for the quarter.
Adjusted EBITDA: $2.3 million, representing a 1.7% adjusted EBITDA margin.
Average Bill Rate: $119 constant currency, down from $125 a year ago.
SG&A Expense: $47.7 million, a 14% improvement from Q1 of the prior fiscal year.
Cash from Sale of Building: $12.3 million unlocked from the sale of the Irvine, California building.
On-Demand Talent Segment Revenue: $52.5 million, a decline of 33% from the prior year quarter.
Consulting Segment Revenue: $55 million, a decline of 3% from the prior year quarter.
Outsourced Services Segment Revenue: $9.5 million, a 1% improvement from the prior year quarter.
Europe and APAC Segment Revenue: $18 million, a decline of 21% from the prior year quarter on a same-day constant currency basis.
Cash and Cash Equivalents: $90 million with zero outstanding debt.
Free Cash Flow: $23 million for the last 12-month period.
Share Repurchases: $5 million worth of shares repurchased at an average price of $11.62 per share.
Q2 Revenue Outlook: Projected to be in the range of $135 million to $140 million.
Q2 Gross Margin Outlook: Estimated to be in the range of 36% to 37%.
Q2 SG&A Expense Outlook: Expected to be in the range of $48 million to $50 million.
Release Date: October 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Resources Connection Inc (NASDAQ:RGP) has evolved its operating model to align strategy and execution with accountable business segments, driving performance.
The company has rebuilt its brand architecture and positioning, launching a new brand positioning to articulate its competitive advantage.
Investments in AI-powered talent acquisition and management software are beginning to show results, enabling faster scaling and access to industry expertise.
The consulting segment, Veracity by RGP, is driving digital and functional transformation with strategic partnerships and a bench model for scalable delivery.
The outsourced services segment, Countsy by RGP, has been recognized as the 2024 BPO Partner of the Year by NetSuite, expanding its market focus to include spinouts and carveouts.
Negative Points
Total revenue for the first quarter of fiscal '25 was $136.9 million, down 19% from the prior year quarter on a same-day constant currency basis.
The on-demand talent segment saw a significant 33% year-over-year revenue decline, primarily due to challenges in the operational accounting group.
Gross margin for the quarter was compressed compared to the prior year quarter, predominantly due to lower utilization of salaried consultants and less favorable leverage on indirect costs.
The pricing environment remains competitive, with the enterprise-wide average bill rate down from $125 to $119 constant currency.
The Europe and APAC segment experienced a 21% revenue decline on a same-day constant currency basis, impacted by summer seasonality and elongated client decision-making cycles.
Q & A Highlights
Q: Can you provide more color on the 33% year-over-year revenue decline in the on-demand segment? A: The most significant challenge has been in our operational accounting group, reflecting the broader market difficulty. Clients are trying to manage with incumbent employees, leading to fewer opportunities. However, we see more opportunities in consulting, especially around tech, digital, ERP system implementation, and supply chain projects. We expect this segment to recover quickly as the economic environment improves. - Kate Duchene, CEO
Q: You mentioned significant quarter-over-quarter growth in the pipeline and larger engagements. Can you quantify this growth? A: Our growth pipeline has increased significantly, up about 15% compared to the end of the first quarter and almost 20% compared to the end of the fourth quarter. This increase is largely due to our internal cross-selling efforts. - Jennifer Ryu, CFO
Q: Are you seeing any positive momentum from clients following the recent interest rate cut? A: Yes, the rate cut is starting to build client confidence, particularly in Europe where we are seeing project closures and starts. This confidence is crucial for decision-making and project initiation. We expect more transactional work, which usually leads to project opportunities for us. - Kate Duchene, CEO
Q: How are clients responding to the segmentation updates and go-to-market changes? A: Clients are reacting positively, especially larger clients. Our new structure allows us to expand beyond financial accounting conversations and engage with additional buying centers. This flexibility is driving momentum across all sectors. - Bhadreskumar Patel, COO
Q: Can you discuss the internal planning and training efforts related to the new segmentation? A: We have positioned our sales force to offer a broader portfolio of solutions. Our sales team acts as a concierge partner to clients, bringing forth the capabilities of our enterprise. This model is well-received by clients who prefer a single trusted partner. - Kate Duchene, CEO and Bhadreskumar Patel, COO
Q: What are your current priorities regarding acquisition opportunities and capital allocation? A: We are focused on integrating recent acquisitions like Reference Point and CloudGo. While we are open to market opportunities, our current priority is execution. We also plan to shift capital allocation towards share buybacks in the coming quarter. - Kate Duchene, CEO and Jennifer Ryu, CFO
Q: How is the new operating model impacting your ability to cross-sell and expand client relationships? A: The new model clarifies internal roles and supports our sales force in cross-selling efforts. We are seeing increased client receptivity and larger engagement opportunities, driven by a stronger focus on go-to-market execution and cross-border sales. - Bhadreskumar Patel, COO
Q: Can you elaborate on the performance of your different business segments in Q1? A: On-demand talent revenue was $52.5 million, down 33%. Consulting revenue was $55 million, down 3%. Outsourced services revenue was $9.5 million, up 1%. Europe and APAC revenue was $18 million, down 21%. Each segment is adapting to market conditions and contributing to our overall strategy. - Jennifer Ryu, CFO
Q: What are your expectations for Q2 revenue and margins? A: We project Q2 revenue to be in the range of $135 million to $140 million, with a gross margin of 36% to 37%. SG&A expenses are expected to be between $48 million and $50 million. We remain optimistic about our long-term growth prospects. - Jennifer Ryu, CFO
Q: How are you leveraging your global delivery centers to enhance client service? A: We have unified our offshore delivery centers in India and the Philippines to better serve clients. This global infrastructure allows us to provide the right talent at the right price and scale, enhancing our ability to deliver exceptional service. - Bhadreskumar Patel, COO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.