Resources Connection Eyes 2027 Recovery Amid Revenue Pressure

Resources Connection Inc. ((RGP)) has held its Q3 earnings call. Read on for the main highlights of the call.Easter Sale - 70% Off TipRanksUnlock hedge fund-level data and powerful investing tools for smarter, sharper decisions Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks Resources Connection Inc. struck a cautious tone on its latest earnings call, acknowledging sharp revenue declines while emphasizing cost discipline, margin stabilization and a rock‑solid balance sheet. Management framed fiscal 2027 as the likely inflection point for renewed growth, but conceded that the next few quarters will remain pressured as demand and pricing adjust to a slower market and AI‑driven role shifts. Revenue Slide Offset by Better Margins Consolidated Q3 revenue fell to $107.9 million, reflecting a steep year‑over‑year decline, yet gross margin improved to 35.7%, up 60 basis points from a year ago. The enterprise average bill rate slipped to $120 on a constant‑currency basis, signaling mix and pricing pressure even as the company focused on higher‑value work. On‑Demand Talent Shows Margin Resilience On‑Demand Talent revenue dropped 16.3% year over year to $40.9 million, but segment adjusted EBITDA improved to $2.9 million, a 7.0% margin versus 5.5% last year. Higher bill rates of $146, reduced headcount and tighter cost controls helped protect profitability despite softer top‑line demand in this core offering. SG&A Cuts Drive Significant Cost Savings Enterprise run‑rate SG&A fell to $39.4 million in Q3, a 10% improvement from $43.7 million a year earlier as management tightened spending. The company expects approximately $12 million to $14 million in annualized cost savings, though some of these funds will be redirected into growth initiatives and client‑facing capabilities. Healthy Liquidity Underpins Capital Flexibility Resources Connection ended the quarter with $82.8 million in cash and cash equivalents and no outstanding debt, providing a strong liquidity cushion. The company also maintained capital returns, paying $2.3 million in quarterly dividends and leaving $79 million on its share repurchase authorization. New Tech Leadership to Accelerate AI Strategy Management highlighted key leadership hires, including a Chief Artificial Intelligence Officer and a Chief Information Officer, to drive the next phase of technology modernization. The company views AI as a net positive, aiming to simplify operations and build differentiated capabilities that can capture emerging client demand. Consulting Integration Targets Simpler Go‑to‑Market Legacy consulting units have been combined into a single Consulting segment under new senior leadership to simplify the structure and sales approach. This integration is intended to streamline cross‑selling with On‑Demand Talent, reduce internal complexity and ultimately improve client engagement across service lines. Selective Reinvestment to Support Future Growth While cutting costs aggressively, Resources Connection is selectively reinvesting savings into leadership, sales capacity and frontline client resources. Management expects these targeted investments to begin contributing meaningfully to growth by the second half of fiscal 2027, positioning the firm for a cyclical upturn. Stability in International and Outsourced Services Europe and Asia Pacific provided a relative bright spot, with solid year‑over‑year growth in markets such as Japan, India and the Netherlands, despite some timing effects. Outsourced Services also showed resilience, delivering modest sequential revenue growth and maintaining a healthy 15.1% margin in Q3. Revenue and Consulting Segment Under Pressure On a same‑day constant‑currency basis, consolidated revenue fell 19.6% year over year, underscoring broad pressure across the portfolio. Consulting was particularly weak, with revenue down 32.5% to $36.9 million and segment adjusted EBITDA sliding to $1.7 million, or a 4.6% margin, on lower utilization. Negative Adjusted EBITDA Highlights Operating Strain At the consolidated level, adjusted EBITDA came in at negative $1.4 million, showing the company has not yet restored operating leverage at today’s revenue base. Management’s actions are aiming to restore profitability, but investors will want to see revenue stabilization before those efforts fully flow through. Bill Rate and Mix Headwinds Persist The enterprise average bill rate declined from $123 to $120 on a constant‑currency basis, driven mainly by mix shifts toward lower‑priced regions. In EAPAC, average bill rates eased to $57 from $59, highlighting competitive and geographic factors that are weighing on overall pricing metrics. Workforce Actions and One‑Time Charges Weigh Near Term The company executed another reduction in force in January, reflecting ongoing efforts to align costs with lower demand. Management expects $13 million to $15 million of non‑run‑rate and noncash expenses, including disposition and separation charges and stock‑based compensation, which will pressure near‑term reported results. Portfolio Simplification via Sitrick Exit Resources Connection signed a binding agreement to divest its Sitrick crisis communications business, which generated about $9 million of annual revenue. The move simplifies the overall portfolio but trims the revenue base and creates additional disposition‑related charges in the short term. AI and Automation Displace Some Roles Management noted that automation and AI adoption is reducing demand for certain lower‑level finance and operational accounting roles, creating a near‑term headwind in those work streams. Over time, the company sees opportunity to pivot toward higher‑value advisory and project‑based work enabled by these technologies. Guidance Signals Ongoing Near‑Term Revenue Pressure For Q4, Resources Connection guided revenue to $104 million to $109 million, with the top end implying about a 16% year‑over‑year decline on an organic same‑day constant‑currency basis and early trends running below Q3. The company expects gross margin of 36.5% to 37.5%, run‑rate SG&A of $39 million to $41 million, and annualized cost savings of roughly $12 million to $14 million, alongside notable non‑run‑rate and noncash charges. Management closed the call emphasizing that while the next few quarters will remain challenging, they are building a leaner, more tech‑enabled platform supported by strong liquidity. For investors, the story is one of short‑term revenue and profit pressure balanced against tangible cost actions, a clean balance sheet and a strategy aimed at returning to growth by fiscal 2027.