Resources Connection Posts Mixed Q2 Results Amid Restructuring and Leadership Transition
Resources Connection Inc (NASDAQ:RGP) reported financial results for its second quarter of fiscal 2026, delivering a mixed performance against analyst expectations. The professional services firm, navigating a CEO transition and a significant restructuring effort, saw its shares decline sharply in after-hours trading following the release.
Earnings and Revenue Versus Estimates
The company’s headline figures presented a complex picture. On a non-GAAP basis, which excludes one-time items, Resources Connection reported adjusted earnings per share (EPS) of $0.06 for the quarter. This result surpassed the consensus analyst estimate of $0.0168, representing a significant beat on the bottom line.
However, the top-line performance told a different story. Quarterly revenue came in at $117.7 million, falling short of the $125.4 million analysts had anticipated. This miss of approximately 6.1% underscores the ongoing revenue challenges highlighted by management.
The market’s immediate reaction was decidedly negative, with the stock dropping over 11% in after-hours trading. This suggests investors are focusing more on the declining revenue and the broader operational pressures than on the earnings beat, which was achieved amid substantial cost-cutting.
Key Financial and Operational Highlights
The earnings release painted a portrait of a company in the midst of a significant transition under new CEO Roger Carlile, who acknowledged the "continued lack of positive momentum" in consolidated revenue and adjusted EBITDA.
- Revenue Decline: Total revenue fell 19.1% year-over-year from $145.6 million. On a same-day constant currency basis, revenue declined by 18.4%. This was driven by a sharp 18.4% decrease in billable hours.
- Segment Performance: The weakness was not uniform across the business. The Consulting segment was hardest hit, with revenue down 28.8% on a constant currency basis. The On-Demand Talent segment saw an 18.4% decline. In contrast, the Europe & Asia Pacific segment posted a slight 0.6% increase, and Outsourced Services revenue was essentially flat.
- Profitability Pressures: Gross margin contracted to 37.1% from 38.5% in the prior year, impacted by higher healthcare costs and lower utilization. The company reported a GAAP net loss of $12.7 million, though this was an improvement from a $68.7 million loss in Q2 fiscal 2025, which included a large goodwill impairment charge.
- Restructuring and Transition Costs: The quarter was heavily affected by one-time expenses, including $5.9 million in cash severance and $3.1 million in stock-based compensation related to the former CEO's separation, plus $2.6 million in restructuring charges from an October workforce reduction.
- Adjusted Metrics: Stripping out these non-run-rate items, Adjusted EBITDA was $4.0 million, down from $9.7 million a year ago, with the corresponding margin falling to 3.4% from 6.6%.
Management Commentary and Forward Outlook
CEO Roger Carlile stated the results "underscore the need to take decisive actions," signaling a period of continued transformation. The company’s stated path forward involves aligning its cost structure with current revenue levels, refocusing its On-Demand offerings, and scaling its Consulting business.
The provided analyst estimates for the coming periods indicate expectations for continued challenges:
- For Q3 fiscal 2026, analysts project a revenue decline of 9.1% to approximately $120.0 million.
- For the full fiscal year 2026, revenue is estimated to decline by approximately 10.1% to $497.3 million.
The press release did not provide formal quantitative financial guidance for comparison against these estimates.
Market Reaction and Investor Takeaway
The steep after-hours sell-off reflects investor concern over the company’s fundamental revenue trajectory, despite the cost-control measures that led to an EPS beat. The market appears to be discounting the one-time nature of the earnings outperformance and focusing instead on the persistent top-line weakness across core segments and the costs associated with the corporate turnaround.
For a detailed breakdown of historical earnings, future estimates, and analyst projections, visit the RGP earnings and estimates page.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
