Resources Connection 2027 Q1 Earnings Call

Thank you, operator, and welcome everyone to RGP's first quarter fiscal 2027 earnings call. Before commenting on our Q1 results, I want to acknowledge Jen Rue's service as RGP's CFO for the last six and a half years. Jen stepped into the CFO role in February 2020, a moment when almost nothing about the world or our business was predictable. She has led our finance organization through one of the most consequential stretches in RGP's history. A global pandemic, the reshaping of how and where professional work gets done, and significant changes across our markets. Through all of this, Jen has provided the disciplined capital stewardship that kept us on solid footing throughout. We wish Jen well in her future endeavors. To ensure continuity, as announced in early September, Jessica Block has stepped in as Interim Chief Financial Officer.

Many of you know Jessica, who joined us in March as our Chief AI Officer. She has more than 20 years of experience leading professional services organizations through growth and transformation, including a year as interim CFO at Factor Law. In addition to the strategic and operational skills Jessica brings to her role as interim CFO, she is now afforded the direct ability to observe and assess how AI can be used in our accounting, finance, and reporting processes to further improve efficiency and costs. As part of this transition, and also announced last month, we have promoted Tricia Jenks to the role of Chief Accounting Officer. Tricia joined RGP in 2019 and most recently served as our Senior Vice President and Corporate Controller. Prior to that, she served as our Senior Vice President of Global Revenue Accounting.

I look forward to working with Jessica and Tricia in these important roles for RGP. Turning to our first quarter results, our revenue and gross margin were within the outlook ranges we provided in July, while our run rate SG&A expense was better than our outlook. That said, our revenue and profitability remained below our long run potential. Revenue for the quarter was $98.1 million. Gross margin was 37.4%, and adjusted SG&A expense was $40.3 million. The largest source of revenue pressure continued to be lower project volume and resulting utilization in our Consulting segment. The On-Demand Talent segment also experienced lower volume, while Outsourced Services remained stable. This reflects two realities. First, client decision-making remains cautious, particularly for larger discretionary projects. Sales cycles remain longer, project start dates continue to move, and contracting and onboarding requirements are taking more time in several parts of the business.

Second, we have work to do within RGP. We need to generate more opportunities, convert more of those opportunities into wins, mobilize projects more quickly, improve Consulting segment utilization, and execute with greater consistency across our markets and capabilities. We are not satisfied with the current financial performance, and we are addressing these issues with urgency and accountability. At the same time, we are seeing several indicators that reinforce our confidence in the long-term demand for our business model and in the actions that we are taking. These include the benefit from disciplined pricing and On-Demand Talent, opportunities in our pipeline, strong performance across our largest client relationships, stability in our Outsourced Services segment, and traction in several of our Consulting segment capabilities. Next, I'd like to address three areas: the demand environment, a review by segment of the progress we're making, and an update on our strategic priorities.

Beginning with the market, conditions remain mixed. We continue to see demand for specialized expertise and execution support across finance, risk, technology, data, AI, and business transformation. Clients are dealing with significant change, including cost pressure, enterprise technology modernization, regulatory demands, operating model transformation, M&A transactions, and the adoption of AI. Those needs align well with RGP's capabilities. However, the existence of client need does not always translate immediately into project starts. Many organizations continue to apply significant scrutiny to discretionary spending, extend approval cycles, divide larger programs into smaller phases, or delay commitments until they have greater budget visibility. The result is a demand environment in which client discussions and pipeline activity can be healthy while revenue conversion remains slower and less predictable. This quarter illustrated that distinction. Across North America, our pipeline creation increased sequentially, including growth in Consulting segment pipeline.

However, closed won dollars stagnated, and project starts did not occur at a sufficient pace to drive sequential revenue growth, considering successful project completions and normal summer seasonality. One of the more encouraging indicators continues to be the performance of our strategic client accounts portfolio. Our largest strategic relationships collectively performed better than we anticipated during the first quarter and grew sequentially. Several of these relationships expanded across new buying centers, geographies, and service offerings. This supports what we discussed last quarter following our Voice of the Customer survey. Clients value RGP for the quality of our people, our flexibility, our speed, and our ability to connect expertise with execution. The performance of these accounts also demonstrates the opportunity available when we manage client relationships strategically, coordinate our capabilities, and engage multiple executive buyers rather than pursuing isolated assignments.

Our objective is to apply the same discipline to a broader group of clients. This includes identifying additional buying centers, bringing the right combination of On-Demand Talent, Consulting, and managed services to each opportunity, and establishing clear accountability for growth. Turning to progress being made, I will begin with On-Demand Talent, where our principal challenge is volume rather than billing rate. We have made meaningful changes to strengthen execution. We have added sales capacity, clarified regional accountability, aligned more of our talent organization with sales leadership, introduced additional sales training, and increased the rigor of activity and pipeline management. We are also rebuilding talent metrics around the outcomes that matter most to revenue, including request volume, speed of response, submissions, fill rates, and time to fill. The sales professionals we hired during the first half of this calendar year are at different stages of their ramp.

Several are already building encouraging pipelines and producing initial wins. We are also investing in additional business development and demand generation capabilities to expand our pipeline, increase client engagement, and create more qualified opportunities. The objective is straightforward: create more opportunities, respond faster, present the right people, and win a greater share of client demand. Turning to our Consulting segment, this is the area where we have the most immediate work to do. Our Q1 revenue reflects lower project volume, slower conversion of pursuits into active engagements, and project completions. The impact was not uniform across the Consulting business, with certain of our capability areas experiencing better revenue and utilization during the quarter than others. Improving consulting utilization is one of our highest near-term priorities, and we are focused on project staffing and resource management. The goal is to deploy our people more quickly and reduce the time between assignments.

We are aligning capacity with realistic demand. We will invest where capabilities are gaining traction, but we will also act where capacity is not supported by near-term demand or a credible pipeline. There were encouraging results within the quarter. We saw strength in several areas of the Consulting portfolio and won meaningful engagements across a range of client priorities, including technology, data, finance transformation, supply chain, and transaction-related work. These wins demonstrate the breadth and relevance of our capabilities. Our task is to make that performance more consistent across the portfolio and to improve the economics of delivery. Regarding our effort to align our cost structure with revenue and simplify how we operate, our Adjusted SG&A expense was $40.3 million, a 9.4% improvement from the prior year quarter, and better than the outlook we provided in July.

This reflects the cost actions implemented during fiscal 2026, including lower employee-related costs and reduced spending in several corporate areas. We have made progress, but the current revenue levels require additional action. The next phase is not simply a broad cost reduction exercise. It is about building a simpler, more scalable operating model. That means clarifying roles, reducing duplicative work, improving systems and processes, aligning incentives, increasing accountability, and using technology more effectively. We will remain disciplined in balancing cost actions with selected investments in the client-facing capabilities needed to grow. Our focus is on improving the efficiency and scalability of the business so that growth translates more effectively into profitability and cash flow. As we move through fiscal 2027, our strategic priorities remain clear. First, refocus and strengthen On-Demand Talent. We are increasing sales activity, improving pipeline quality and conversion, deepening our strategic client relationships, and maintaining price discipline.

Second, scale Consulting with discipline. We are focused on improving project staffing and utilization and scaling the capabilities where we have demonstrated client demand and differentiation. Third, advance AI and data as practical business capabilities. That means developing solutions designed to produce measurable client outcomes and revenue, while also using an AI to improve productivity and decision-making within RGP. Fourth, simplify how we operate and align our cost structure with current revenue. We are reducing complexity, improving processes and systems, and creating clear accountability for results throughout the organization. We remain confident in the long-term demand for RGP's integrated model. Clients increasingly need a combination of specialized expertise, consulting rigor, flexible delivery, and accountability for execution. Our ability to provide On-Demand Talent, Consulting, and Outsourced Services gives us a differentiated way to meet that need. We have strong client relationships, talented people, relevant capabilities, and a differentiated platform.

Our responsibility is to bring those assets together more effectively, operate with discipline, and deliver measurable progress. With that, I will turn the call over to Jessica to provide additional detail on our first quarter financial results and our outlook for the second quarter.