Resources Connection, Inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• New CEO Roger Carlisle thanked leadership and employees, emphasizing focus on clients and business. Highlighted the need to align cost structure with revenue, refocus on-demand offerings, and scale consulting business.
• Bhadresh Patel discussed segment performance, noting consulting segment growth in CFO advisory and digital transformation, On-Demand stabilization, Europe and Asia Pac growth, and outsourced services margin improvement. Mentioned integration of ReferencePoint and leadership changes in consulting.
• Jennifer Ryu provided details on consolidated revenue, gross margin, and SG&A expense. Discussed cost reduction efforts, including a reduction in force yielding annual savings of $6-8 million, and third quarter outlook with revenue expectations and margin guidance.

Segment Performance

• Consulting: Revenue declined 28.8% year-over-year to $42.6 million, with segment adjusted EBITDA of $4.5 million (10.4% margin) compared to $9.7 million (16% margin) in Q2 fiscal 2025. Growth in select areas like CFO advisory and digital transformation was noted.
• On-Demand: Revenue decreased 18.4% year-over-year to $43 million, with segment adjusted EBITDA of $4.1 million (9.5% margin) versus $5.6 million (10.5% margin) in Q2 fiscal 2025. Shows sequential stabilization with higher average bill rates.
• Europe and Asia Pac: Revenue was $20.1 million, a 0.6% year-over-year growth. Segment adjusted EBITDA was $1.5 million in both Q2 fiscal 2026 and 2025, representing a 7.4% margin in Q2 fiscal 2026.
• Outsourced Services: Revenue was $9.4 million, up 0.8% year-over-year. Segment adjusted EBITDA was $1.7 million (18.4% margin) compared to $1.5 million (16.4% margin) in the prior year quarter. Gross margins improved versus the prior year.

Guidance

• Third quarter outlook: Revenues expected to be $105 to $110 million. Gross margin expected to be 35% to 36% due to seasonality and holiday pay. Run rate SG&A expense expected in the range of $40 to $42 million, with non-run rate and non-cash expenses in the range of $6 to $7 million.

Risks

• Impact of AI/automation on job roles, with some operational accounting roles being more impacted but AI also accelerating insights. Uncertainty in client adoption of AI solutions and potential delays in implementation. Healthcare costs and seasonality affecting gross margins.

Question and Answer

Q: Can you talk about specific areas where AI is leading to disintermediation with finance and accounting roles, and how widespread it is?

A: Roger and Bhadresh discussed that operational accounting roles are more impacted, but AI is accelerating insights rather than replacing all jobs. Higher-level roles are seeing skill evolution with a need for AI knowledge.

Q: How much of an impact was higher healthcare cost, and are plan design changes being considered?

A: Jennifer Ryu noted healthcare cost was over a million dollars impact, an anomaly due to unfavorable claims experience, and annual plan design assessments are conducted but this was seen as a one-time issue.

Q: Is AI causing clients to take a step back in decision-making?

A: Bhadresh mentioned clients are confused by spot AI technologies conflicting with enterprise applications, leading to a slowdown in decision-making around integrating AI solutions.