Resources Connection, Inc. Q3 FY2026 earnings call

Good afternoon, ladies and gentlemen, and welcome to the RGP conference call. Roger Carlisle mentions five months as CEO, optimism growing, interactions with employees, shareholders, clients confirm strength of business, strategy of service delivery modes as competitive differentiator. Four strategic priorities: refocus on-demand talent, scale consulting, simplify operations, align cost structure. Made focused hires in on-demand and consulting, added key leaders Jessica Block (CIO) and Prashant Lamba (CAIO). Refocus on-demand talent: added sales leadership in regions, growing sales team, adding on-demand team members in ERP, finance, data, etc. Scale consulting: integrated legacy consulting units, led by Scott Rotman, unified business focused on CFO and CIO needs. Simplification strategy: added Prashant Lamba to simplify tech processes, integrated consulting business, signed binding agreement to dispose Citrix Crisis Communications. Cost alignment: reduced cost structure, expect $12 - $14M annual savings, reinvesting some in growth areas

On-demand talent: Revenue is $40.9 million, a decline of 16.3% from the prior year quarter. Segment-adjusted EBITDA increased to $2.9 million, or a 7% margin. Consulting: Revenue is $36.9 million, down 32.5% year-over-year. Segment adjusted EBITDA was $1.7 million or 4.6% margin. Europe and Asia Pacific: Revenue was $18.1 million compared to $18.6 million a year ago, a decline of 5.8% on a same-day constant currency basis. Segment adjusted EBITDA was $0.8 million. Outsource services: Revenue was $9.5 million, down 1.7% on a same-day basis from the prior year quarter. Segment adjusted EBITDA was $1.4 million or a 15.1% margin

Early fourth quarter weekly revenue trends are tracking below third quarter levels. Based on current visibility, we expect fourth quarter revenue in the range of $104 to $109 million. We expect growth margin in the fourth quarter to be between 36.5 and 37.5 percent. Run rate SG&A expenses for the fourth quarter are expected to be in the range of $39 to $41 million. Non-run rate and non-cash expenses are expected to be in the range of $13 to $15 million. Expect revenue growth in fiscal year 2027, with reinvestments in key areas

Client decision-making deliberate, larger and complex work sales cycles long. Impact of Iran conflict on clients' attitudes and plans uncertain. Citric disposition and separation costs as non-run rate and non-cash expenses

Our first question comes from Andrew Steinerman with J.P. Morgan, you may proceed. Yes. Hi, this is Alex Hesson for Andrew. Just to confirm, there was no M&A revenue in the quarter, correct? And Jen, can you elaborate on what the guide calls for on a currency currency same day organic basis for the May quarter? Yes. Hi, Alex. Yes. There's no M&A revenue in the quarter. So T4's got at the top of the range is about a 16% year-over-year decline on an organic constant currency same-day basis. Got it. And then just thinking, you know, big picture, last quarter you guys spoke to trying to tease out the impact that automation and AI might be having on some work streams for you guys. Obviously, there's been a lot of press releases and a lot of you know, senior leadership turnover and, you know, trying to just understand when it comes to visibility that you have into the long run return to growth of the business, you know, how much do you guys think you have the muscle in place right now to make that forecast? And when do you think that there might be a, you know, we might be looking for a pivot? Thank you. Excuse me. Thank you. This is Roger Carlisle. Excuse me for my voice. I think, as I said in the comment and in the press release, we're confident that we're going to grow the business. And so at the moment, I mean, under the conditions we see right now and the investments we've made and the conversations we're having with clients, I'm confident that fiscal year 2027 will be growth over time. fiscal year 2026 when we're, you know, we wrap up the year. So now you may ask, where's that going to be? I think it's kind of, you know, obviously you've got a lot of investments that are coming to fruition. So I think you're going to see that growth more prevalent in the latter half of the year, the first half of the fiscal year. But at the moment, that's what I believe. I think you're going to see growth in the top line for RGP in fiscal year 2027. Excellent. Thank you. Questions and Answers: Thank you. Our next question comes from Joe Gomes with Noble Capital. You may proceed. Good afternoon. Thanks for taking my questions. Hi, Joe. You guys mentioned you've had a lot of new hires or promotions. You've done a lot of press releases on that. In your research, Comments today you talk about, you know, they should help drive revenue growth, you know to an anticipated ramp up period You know, maybe give us a little idea, you know what that timing of that ramp up period is We're talking one quarter two quarters, you know, what where where does that stand? Well, I mean it varies in my experience, you know from person to person and from from type of service, but I Generally speaking, I think we expect those things to have maturation periods of between six and nine months. Sometimes you're lucky and they're shorter. Perhaps in the AI space, for example, we're having a lot of conversations and Jessica joining immediately, we're seeing already impact there. I think that might be shorter. But in other things, it could be longer. So I think With nothing more than just my own instinct from being in the business for a long time, I would say I'm looking at a six- to nine-month period of time, which is why I'm comfortable that we'll start to see revenue growth in fiscal year 2027, but it'll probably come in the latter two quarters of that fiscal year. Roger, thanks for that. Just going on that, you're confident you'll see revenue growth in 2027. What what needs to happen? Do we need to see, you know, 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 know, you're confident we'll see revenue growth in 27 over 26? Yeah, good question. I think, first of all, we don't, I don't need the market to change dramatically worse. Right. I mean, I just need it to be, nor do I need it to be in my mind dramatically better. I just need it to be, you know, sort of in its current condition throughout that, that maturation period. And then I think it's mostly, you know, in our hands, whether we are ultimately taking market share. I mean, probably anytime we win something and someone doesn't that, you know, you could say is moving some share, but I don't know if it's significant enough to say you're moving total market share. But we need to continue for the people that we're adding, the new salespeople, the new consulting leaders, the new leaders like Jessica and others. We need to keep having the conversations we're having at the pace we're having them. And frankly, if we just keep winning at the current pace, I mean, I think we'll win more, but if we can win at the current pace, we're having more of those conversations, more opportunities coming to the top of the pipeline, I think we'll see that we're starting to grow the revenue. Essentially, if we have more people, we're having more and better conversations, and I think that's going to result in revenue growth. Okay, and then one more for me, if I may. I mean, given where the stock is these days and given the cash and the authorized buyback, I mean, you know, kind of what's your thought process on, you know, when you would look to step into the market and maybe repurchase some shares here? Yeah. Hi, Joe. This is Jen. Yeah. I mean, as you know, we've been working on taking out costs and also been, you know, reassessing strategic priorities and we started reinvesting into the business. So given, you know, all the The moving pieces, you know, we're still assessing just it's been impact holistically, you know, including, you know, where we are from a liquidity standpoint. But, yeah, I mean, no doubt, you know, we think our shares are very attractive and we'll look to begin executing on buybacks when we are ready. Great. Thanks for that. I'll get back in queue. Thanks, Joe. Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Karthik Mehta with North Coast Research. You may proceed. Hey, good evening, Roger and Jen. Sorry about that. Hey, Roger. In the previous earnings calls, you talked about AI displacing some lower-level opportunities but also creating opportunities. And I'm wondering, as you look over the next 12 to 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? I think at this point in time, it's a tailwind. I mean, I think it's going to be a tailwind for a lot of professional services companies, notwithstanding what the popular media was saying, as long as they're diligently doing something about it and executing. I mean, if you sit by and you do nothing, then the world will pass you by. But in the short run, there's internally just using the tools for ourselves and making ourselves more efficient, you know, can be a tailwind on our cost structure and the kinds of conversations we're having with clients that range all the way from helping them get their data prepared to apply AI tools against it up through helping them just make, you know, sort of buy set or, you know, buy build decisions. And implementing that, those are all services that we provide to clients. And so I think those are going to also be tailwinds for us. And, Jen, I know you guys are investing in the business. You've hired salespeople. Obviously, you've hired leaders for the business. And as you look at your SG&A, are we at a trough or kind of at a stability level for SG&A? Yeah, I mean, I would say yes, we're nearing the stability level for SG&A. As you know, I mean, we started reinvesting this quarter in Q3. So, you know, over the next couple of quarters, you'll see the full impact of those reinvestments come in. but offsetting that we will also be realizing the benefits from the cost actions that we've you know we've taken so those two things will have some offset um but you know timing wise it's not going to line up um perfectly uh i would say that given the reinvestment starting in q1 of fiscal 27 we will see a slight kind of elevation of our sgna expenses but like roger said You know, we're also expecting that investment to pay off in the latter half of fiscal 27. And just one last question, Roger. Any other portfolio actions you anticipate over the next 12 to 24 months? Well, nothing that I have in process at the moment, so I couldn't comment. But, you know, by portfolio, maybe you mean service areas or But we're constantly, I think we mentioned, right, simplification is one of our focal points. But that includes a number of things, the processes that we do, the services we offer, and where we offer those services. So we're constantly looking at that, and that will be continuing. Perfect. Thank you very much. I really appreciate it. Thank you. Our next question comes from Alexander Sinatra with Baird. You may proceed. Hi, this is Alexander for Mark Marcon. 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, and this is something you mentioned last quarter too, so just kind of wondering if we could get a little bit more detail on that, what kind of negative impact you're seeing. Yeah, well, I think what we... mentioned this quarter is really just consistent with what we were seeing the last quarter. I don't think there's been any acceleration on that. I think the comments I made about the overall market for our services was that it was pretty consistent with what we saw in the prior quarter. So, I mean, there are certainly some kinds of roles that as clients install AI tools that are then less in demand. And some of the ones that we saw that in were the you know, operational accounting, those types of skills. But nothing accelerating on that. I think it's sort of a steady state on that right now. Great. Super helpful. And then in terms of the sale of Citrix, I was just kind of wondering how much you expect to net from that, not just the revenue, but like, you know, on a margin perspective, how that's expected to impact you. Sure. Yes. So the Citric disposition, Citric has been around nine-ish million on an annual basis from a revenue standpoint. And this will actually be, you know, from a profitability standpoint, it's not going to have any material impact on the business. Gotcha. Thank you. Thank you. I would now like to turn the call back over to Roger Carlisle for any closing remarks. Thank you, Operator, and thanks, everyone, for joining our call today. As I said last time, we appreciate your interest in RGP, and don't hesitate to reach out with any additional questions. Thank you. Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.