• Revenue: $145.6 million, a sequential growth of 5% over Q1 of fiscal '25.
• Gross Margin: 38.5%, a 200 basis points improvement from the first fiscal quarter.
• Adjusted EBITDA: $9.7 million, or a margin of 6.6%, up from $2.3 million in Q1.
• Consulting Segment Revenue: $60.6 million, flat year over year after adjustments.
• On-Demand Segment Revenue: $53.5 million, a decline of 27% year over year on an adjusted basis.
• Europe & Asia Pac Segment Revenue: $19.7 million, a decline of 12% year over year.
• Outsourced Services Segment Revenue: $9.4 million, a growth of 1% year over year.
• Cash and Cash Equivalents: $78 million with zero outstanding debt.
• Free Cash Flow: $23 million for the trailing 12-month period.
• Dividends Distributed: $4.7 million in the second quarter.
• Share Buybacks: $5 million worth of shares at an average price of $8.36 per share.
• Non-Cash Goodwill Impairment Charge: $79.5 million in the second quarter.

• Warning! GuruFocus has detected 4 Warning Sign with RGP.

Release Date: January 02, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Resources Connection Inc (NASDAQ:RGP) reported sequential improvement in revenue, gross margin, SG&A, and adjusted EBITDA in Q2, exceeding their outlook.
• The company achieved a significant milestone by implementing a new technology platform in North America, enhancing efficiency and service delivery.
• RGP's diversified service offerings, including professional staffing, consulting, and outsourcing, position the company as a preferred partner across various economic conditions.
• The consulting segment, Veracity, grew by 10% in Q2 with improved bill rates and utilization metrics.
• RGP's flexible talent model and cross-selling efforts are driving growth and strengthening client relationships, particularly in finance transformation and digital transformation initiatives.

Negative Points

• Despite improvements, overall results were still down year-over-year, with a 13% decline in revenue compared to the prior year quarter.
• The company recorded a non-cash goodwill impairment charge of $79.5 million due to a drop in market capitalization and delayed recovery in business performance.
• The on-demand segment experienced a 27% decline in revenue year-over-year on an adjusted basis.
• RGP faces competitive pricing pressures, particularly in international regions, impacting pay bill ratios and utilization.
• The macroeconomic environment remains uncertain, with clients hesitant to commit, impacting the company's revenue expectations for the third quarter.

Q & A Highlights

Q: Can you provide more details on the gross margin improvement? A: Jennifer Ryu, CFO: The improvement in gross margin over Q1 was due to a better pay bill ratio, improved utilization of benched consultants, and favorable holiday impacts. Year-over-year, there was some degradation in the pay bill ratio due to talent shortages, especially in the EU and APAC regions, but this was offset by the Thanksgiving holiday impact.

Q: How is Reference Point performing, and is it meeting your expectations? A: Kate Duchene, CEO: Reference Point is performing to our expectations. We are integrating it quickly to expand its solutions into our client base, starting with financial services and exploring opportunities outside of this sector.

Q: Why was the stock buyback not more aggressive this quarter? A: Jennifer Ryu, CFO: The timing was influenced by our digital technology transformation. Now that it's complete, we expect to increase our stock repurchase activities.

Q: Can you provide more color on the on-demand segment's performance in Europe and Asia? A: Bhadresh Patel, COO: We are seeing increased demand in finance, accounting, digital transformation, and supply chain. The pipeline is filling up with early-stage discussions across clients, indicating more activity than last quarter.

Q: How should we think about the impact of the amortization of transformation costs? A: Jennifer Ryu, CFO: The annual amortization expense will be around $3 million, starting halfway through Q3, with Q4 being the first quarter to fully reflect this impact.

Q: How does the pace of project completion in November and December compare to a typical year? A: Bhadresh Patel, COO: We are not seeing the typical end-of-year project cliffs. We manage project endings and new engagements continuously, and this year is unique with more client activity than last year.

Q: What is the expected year-over-year change in revenue for the third fiscal quarter? A: Jennifer Ryu, CFO: At the midpoint of our guidance range, we expect a 15% year-over-year decline on an organic same-day constant currency basis.

Q: Can you share more about the cross-selling benefits and early successes? A: Bhadresh Patel, COO: We are seeing significant activity in finance transformation, digital transformation related to employee experience, and supply chain modernization. These align with our strategic focus and client needs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.