Resources Connection, Inc. Q1 FY2026 earnings call

• Company delivered results better than outlook for all measures in Q1. Europe and Asia Pac achieved 5% growth and strong Q2 pipeline. Japan and India had growth in Q1. Revenue from top 10 clients grew Y/Y. Countsy grew in Q1 with strong proposal activity in Q2. Consulting segment had double-digit bill rate improvements, increasing deal size and pipeline momentum. Company transformed from staffing to diversified platform focusing on CFO advisory and digital transformation with 5 key differentiators: agility, expertise, global talent network, diversified services model, focus on CFO and digital, scalable model, client-centric approach. Working more collaboratively across enterprise, accelerating consulting integration. Countsy is an outsourced finance and accounting service expanding AI and automation offerings. Cost structure being redesigned to fit business size, etc., with progress in reducing run rate SG&A.

In Q1, revenue was above outlook range. Gross margin significantly better and SG&A came in better than outlook. Consulting segment revenue declined Y/Y but had growth in some areas like ServiceNow, etc., with improved bill rates and utilization. On-Demand revenue declined Y/Y but showed signs of stabilization with improved gross margins. Europe and Asia Pac segment delivered solid Y/Y revenue growth. Outsourced Services segment delivered Y/Y revenue growth with gross margin expansion. Europe and Asia Pac: $19.9 million, 5% growth. Consulting: $43.6 million, -22% Y/Y. On-Demand: $44.4 million, -16% Y/Y. Outsourced Services: $10 million, 4% growth.

• Second quarter outlook: revenue $115 million - $120 million. Gross margin outlook 38% - 39%. Run rate SG&A expense $43 million - $45 million. Non-run rate and noncash expenses around $5 million including noncash stock compensation and ~$2 million restructuring expense. Early second quarter weekly revenue run rate stable. Outlook calls for revenue stability in Q2 while pushing sales pipeline momentum. Current government shutdown could impact operating environment.

• Global macro environment remains uncertain, disrupted and slow moving for professional services. Longer sales cycles and slower project starts in current environment impact near-term quarterly revenue. Current government shutdown could lead to additional disruption in operating environment.

Q: What's the trend in pricing?

A: On staffing business rates pretty steady. On consulting, while there are pricing pressures, net new projects have higher rates as they bring thought leadership. Roles like operational accounting face more pricing pressures as AI and automation take over.

Q: How much of pipeline is from cross-selling?

A: Still building pipeline, but increasing million-plus deals and anticipating conversion.

Q: Revenue guide break out by segments?

A: Europe and Asia Pac to continue strength, on-demand and consulting trend similar.

Q: Regional differences in on-demand and consulting in U.S.?

A: Seeing demand in West Coast and Southeast, attributed to teams and tenure.

Q: Where is new CFO Advisory leader based?

A: Based in Washington, D.C., Northern Virginia.

Q: Quarter's revenue delta in same-day constant currency?

A: Down 13.9%, mostly business day impact with some currency impact.

Q: Acquired revenue in quarter?

A: Very little, as Reference Point was acquired last year.

Q: Client appetite to spend?

A: Still choppy environment, uncertain for next couple of quarters, but work is progressing.

Q: Board refresh impact?

A: One Board member brings private equity lens for optimizing bottom line, another brings operating and transformation experience for behavioral changes.