In the face of a challenging economic landscape, Resources Connection, Inc. (NASDAQ:RGP) has reported a strong second quarter for the fiscal year ending November 25, 2023. The company's revenue landed in the higher end of their guidance range, and adjusted EBITDA surpassed expectations, largely due to stringent cost management. Veracity, RGP's digital transformation segment, saw sequential revenue growth, bolstered by the acquisition of CloudGo. The company's balance sheet remains robust, with $95.8M in cash and no debt. RGP's outlook for the third quarter includes revenue projections of $150M to $155M and anticipates a compressed gross margin due to seasonal effects.
Key Takeaways
- RGP reported revenue within the stronger half of its guidance and an adjusted EBITDA that exceeded forecasts.
- Veracity, the digital services division, expanded through the acquisition of CloudGo and saw sequential revenue growth.
- The company's balance sheet is strong, with significant cash reserves and no outstanding debt.
- RGP's pricing initiative in the U.S. led to a 1.3% year-over-year increase in bill rate.
- The company is focusing on diversification, talent strategies, and technology transformation for the remainder of the fiscal year.
- RGP expects third-quarter revenue between $150M and $155M, with a compressed gross margin.
Company Outlook
- RGP anticipates third-quarter revenue to be in the range of $150M to $155M.
- The company plans to continue investing in its business, with a capital allocation focus on disciplined M&A strategies and returning cash to shareholders.
Bearish Highlights
- North America's performance reflects a choppy operating environment, while Europe and Asia-Pacific experienced modest declines.
- Gross margin faced pressure from a mix of business and a spike in healthcare costs.
- Seasonality is expected to compress gross margin in the upcoming quarter.
Bullish Highlights
- The company's digital transformation arm, Veracity, is expanding and showing revenue growth.
- Growth was seen in Mexico, India, Philippines, and Switzerland.
- RGP's pricing initiative has led to improved bill rates in the U.S. and Europe.
- The company generated robust free cash flow and ended the quarter with a strong balance sheet.
Misses
- Consultant headcount decreased by an average of 300 to 400 year-over-year.
Q&A Highlights
- CEO Kate Duchene emphasized the strategic blending of talent pools to meet the demand for digital transformation skills.
- CFO Jennifer Ryu noted the company's stable consultant headcount and the strategic decrease.
- The company is investing in its digital transformation project, with $8M to $10M allocated for the rest of the year.
- RGP is focusing on acquisitions to enhance consulting capabilities, particularly in user experience and functional expertise.
- Opportunities in healthcare and financial services are key growth areas, with ongoing demand for digital transformation and regulatory remediation.
Resources Connection, Inc. has demonstrated resilience in a tough global market, with a clear strategy for navigating the uncertain macro environment. With a strong balance sheet, strategic acquisitions, and a focus on digital transformation, RGP is poised to continue its growth trajectory while adapting to the dynamic business landscape.
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