8-K: RGP Reports Q2 FY26 Loss Amid Revenue Decline, Restructuring

Resources Connection, Inc. announced a net loss of $12.7 million for Q2 fiscal 2026, with revenue declining 18.4% year-over-year, prompting strategic restructuring efforts.

Summary

• Revenue for the second quarter of fiscal 2026 was $117.7 million, a decrease from $145.6 million in the prior year quarter.
• Same-day constant currency revenue, a non-GAAP measure, declined by 18.4% year-over-year.
• The company reported a net loss of $12.7 million (net loss margin of 10.8%), a significant improvement from a net loss of $68.7 million (net loss margin of 47.2%) in the prior year quarter, which included a goodwill impairment charge.
• GAAP diluted loss per common share was $0.38, compared to $2.08 in the prior year quarter.
• Adjusted diluted earnings per common share, a non-GAAP measure, was $0.06, down from $0.18 in the prior year quarter.
• Adjusted EBITDA, a non-GAAP measure, was $4.0 million (Adjusted EBITDA margin of 3.4%), compared to $9.7 million (Adjusted EBITDA margin of 6.6%) in the prior year quarter.
• Gross margin decreased to 37.1% from 38.5% in the prior year quarter, impacted by higher healthcare costs, increased holiday pay, and lower utilization of salaried consultants.
• Selling, general and administrative expenses (SG&A) increased to $54.4 million from $51.3 million, primarily due to $5.9 million in cash severance and $3.1 million in stock-based compensation costs related to the former CEO's separation, and $2.6 million in restructuring charges from a reduction in force in October 2025.
• Cash dividends declared were $0.07 per share, a reduction from $0.14 per share in the prior year quarter.
• On-Demand Talent segment revenue decreased 18.4% on a same-day constant currency basis, attributed to reduced demand in traditional finance roles due to client adoption of artificial intelligence and automation.
• Consulting segment revenue decreased 28.8% on a same-day constant currency basis, driven by a 33.8% decrease in billable hours.
• Europe & Asia Pacific segment revenue increased 0.6% on a same-day constant currency basis, primarily due to project extensions with key accounts in Europe.

Sentiment

Score: 3

Explanation: The company reported significant declines in revenue and Adjusted EBITDA, alongside a halved dividend, indicating substantial operational challenges. While the GAAP net loss improved, this was largely due to a prior-year goodwill impairment. Management acknowledges the need for decisive action and ongoing restructuring, suggesting a challenging period ahead despite efforts to adapt.

Positives

• Net loss significantly reduced to $12.7 million from $68.7 million in the prior year quarter, although the prior year included a substantial goodwill impairment charge.
• Adjusted SG&A improved by 15% to $39.7 million from $46.5 million, reflecting cost management efforts.
• The average bill rate in the U.S. improved by 2.5% compared to the second quarter of fiscal 2025.
• The company achieved a 97 basis point improvement in the pay/bill ratio.
• The Europe & Asia Pacific segment showed revenue growth of 0.6% on a same-day constant currency basis, with billable hours in Europe increasing by 12.6% due to project extensions.
• Cash flow from operating activities increased to $8.059 million for the three months ended November 29, 2025, compared to $1.490 million in the prior year quarter.

Negatives

• Revenue declined by 18.4% year-over-year to $117.7 million.
• Same-day constant currency revenue declined by 18.4%, indicating a broad-based reduction in demand.
• Adjusted EBITDA decreased significantly to $4.0 million (3.4% margin) from $9.7 million (6.6% margin) in the prior year quarter.
• Gross margin decreased to 37.1% from 38.5%, impacted by higher healthcare costs, increased holiday pay, and lower utilization of salaried consultants.
• GAAP SG&A increased by $3.1 million year-over-year, primarily due to $9.0 million in CEO transition costs and $2.6 million in restructuring charges.
• Adjusted diluted earnings per common share decreased to $0.06 from $0.18.
• Cash dividends declared per common share were halved to $0.07 from $0.14.
• On-Demand Talent revenue decreased 18.4% due to reduced demand in traditional finance roles, impacted by AI and automation adoption.
• Consulting revenue decreased 28.8% due to a 33.8% decrease in billable hours.
• Billable hours decreased 18.4% year-over-year across the company.
• The overall average bill rate decreased 1.2% year-over-year (1.6% on a constant currency basis).
• Income tax expense of $0.7 million was recorded despite a pre-tax loss, due to income from profitable foreign jurisdictions and valuation allowances on domestic losses.
• Agile consultant headcount on assignment decreased to 2,288 from 2,758 in the prior year quarter.
• Salaried consultant headcount decreased to 400 from 527 in the prior year quarter.

Risks

• Risks related to an economic downturn or deterioration of general macroeconomic conditions.
• Potential adverse effects to liquidity and financial performances from bank failures or other events affecting financial institutions.
• The highly competitive nature of the market for professional services.
• Risks related to the loss of a significant number of consultants, or an inability to attract and retain new consultants.
• The possible impact on the business from the loss of the services of one or more key members of senior management or key sales professionals.
• Risks related to potential significant increases in wages or payroll-related costs.
• The ability to secure new projects from clients.
• The ability to achieve or maintain a suitable pay/bill ratio.
• The ability to compete effectively in the competitive bidding process.
• Risks related to unfavorable provisions in contracts which may permit clients to terminate the contracts partially or completely at any time prior to completion.
• The ability to realize the level of benefit that is expected from restructuring initiatives.
• Risks that recent digital expansion and technology transformation efforts may not be successful.
• The ability to use artificial intelligence and machine learning in the business.
• The ability to build an efficient support structure as the business continues to grow and transform.
• The ability to grow the business, manage growth or sustain current business.
• The ability to serve clients internationally, and additional operational challenges from international activities.
• Possible disruption of the business from past and future acquisitions.
• The possibility that recent rebranding efforts may not be successful.
• Potential inability to adequately protect intellectual property rights.
• Risks that computer hardware and software and telecommunications systems are damaged, breached or interrupted.
• Risks related to the failure to comply with data privacy laws and regulations and the adverse effect it may have on reputation, results of operations or financial condition.
• The ability to comply with governmental, regulatory and legal requirements and company policies.
• The possible legal liability for damages resulting from the performance of projects by consultants or for clients' mistreatment of personnel.
• Risks arising from changes in applicable tax laws or adverse results in tax audits or interpretations.
• The possible adverse effect on the business model from the reclassification of independent contractors by foreign tax and regulatory authorities.
• The possible difficulty for a third party to acquire the company and resulting depression of stock price.
• The operating and financial restrictions from the credit facility.
• Risks related to the variable rate of interest in the credit facility.
• The possible impact of activist shareholders.
• The possibility that the company is unable to or elects not to pay its quarterly dividend payment.

Future Outlook

The company plans to take decisive actions to better align its cost structure with current revenue levels, refocus On-Demand offerings to address evolving client needs, and scale its Consulting business to deliver high-value solutions. These actions are expected to strengthen the business and create long-term value for clients and shareholders, though they will require time and disciplined execution.

Management Comments

• "I want to thank our leadership and employees for welcoming me as RGP's newly appointed CEO and for supporting a smooth transition."
• "I also want to recognize our teams for maintaining a strong focus on our clients and the business during this period."
• "While our balance sheet remains strong, our quarterly earnings results reflect a continued lack of positive momentum of our consolidated revenue and Adjusted EBITDA."
• "These results underscore the need to take decisive actions to better align our cost structure with our current revenue levels, refocus our On-Demand offerings to address the evolving needs of our clients, and scale our Consulting business to deliver high-value solutions to both existing and new clients."
• "This work will require time and disciplined execution, but the path forward is clear, and we are confident these actions will strengthen our business and create long-term value for our clients and shareholders."

Industry Context

The decline in On-Demand Talent revenue, particularly in traditional finance roles, is explicitly linked to clients' increasing adoption of artificial intelligence and automation. This reflects a broader industry trend where technological advancements are reshaping demand for professional services and requiring firms to adapt their talent base and service offerings to remain competitive.

Management Changes

Stakeholder Impact

• Shareholders: Experienced significant revenue and Adjusted EBITDA declines, along with a reduced dividend, indicating a negative financial impact. The company aims to create long-term value through strategic actions.
• Employees: Impacted by a reduction in force executed in October 2025, following a previous reduction in fiscal 2025, leading to decreased employee compensation and benefits costs.
• Clients: The company is refocusing On-Demand offerings to address evolving needs and scaling Consulting to deliver high-value solutions, indicating an effort to better serve client demands.

Next Steps

• Take decisive actions to better align the cost structure with current revenue levels.
• Refocus On-Demand offerings to address the evolving needs of clients.
• Scale the Consulting business to deliver high-value solutions to both existing and new clients.
• Continue disciplined execution of strategic initiatives to strengthen the business and create long-term value.

Key Dates

Recommendation

The company faces significant headwinds, including an 18.4% revenue decline, a substantial drop in Adjusted EBITDA, and a halved dividend. While the net loss improved year-over-year, this was largely due to a prior-year goodwill impairment. The ongoing restructuring and CEO transition costs indicate a period of instability. The impact of AI and automation on traditional finance roles suggests structural challenges in a key segment. Despite management's stated path forward, the current financial performance and operational challenges warrant a cautious stance, suggesting a 'sell' recommendation for investors seeking stability and growth.

Keywords

Professional Services, Consulting, On-Demand Talent, Financial Results, SEC Filing, RGP, Resources Connection, Q2 Fiscal 2026, Revenue Decline, Net Loss, Adjusted EBITDA, Restructuring, Corporate Governance, CEO Transition, AI Impact, Digital Transformation