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01/10 16:47
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlighted declines in key segments, with significant year-over-year revenue drops in both On-Demand and Consulting segments. Despite some growth in Outsourced Services, the overall financial performance was weak. The Q&A section further revealed concerns about AI's impact on roles and unclear management responses on strategic vision. Additionally, healthcare costs impacted margins, and while SG&A expenses improved, the lack of strong positive catalysts and weak guidance suggest a negative stock price reaction in the near term.
Consolidated Revenue $117.7 million, declined 18.4% year-over-year on a same-day constant currency basis. The decline was attributed to softness in On-Demand and Consulting segment revenues, despite steady growth in Europe, Asia Pac, and Outsourced Services segments.
Gross Margin 37.1%, down from 38.5% in the prior year quarter. The decline was due to unfavorable leverage on indirect costs of service, including healthcare costs and paid time off, despite a 97 basis point improvement in pay bill ratio.
Adjusted EBITDA $4 million, representing a 3.4% adjusted EBITDA margin. This exceeded expectations despite revenue coming in below consensus, reflecting disciplined cost management and execution.
GAAP Net Loss $12.7 million, driven by $11.9 million of onetime expenses related to the CEO transition and a reduction in force.
On-Demand Segment Revenue $43 million, declined 18.4% year-over-year. Segment adjusted EBITDA was $4.1 million or a 9.5% margin, down from $5.6 million or a 10.5% margin in the prior year quarter.
Consulting Segment Revenue $42.6 million, declined 28.8% year-over-year. Segment adjusted EBITDA was $4.5 million or a 10.4% margin, down from $9.7 million or a 16% margin in the prior year quarter.
Europe and Asia Pac Segment Revenue $20.1 million, grew 0.6% year-over-year. Segment adjusted EBITDA was $1.5 million, representing a 7.4% margin, slightly down from 7.5% in the prior year quarter.
Outsourced Services Segment Revenue $9.4 million, grew 0.8% year-over-year. Segment adjusted EBITDA was $1.7 million or an 18.4% margin, up from $1.5 million or a 16.4% margin in the prior year quarter.
Enterprise-wide Average Bill Rate $121 constant currency, down from $123 a year ago, primarily due to a revenue mix shift toward the Asia Pacific region.
Run Rate SG&A Expense $39.7 million, a 15% improvement from $46.5 million a year ago. The improvement was driven by reductions in management compensation, variable compensation, and SG&A spend, including travel, occupancy, and professional services.
AI and automation tools: RGP is implementing additional AI and automation tools across business processes to enhance cost-effectiveness in client service delivery and internal business support functions.
International growth: Europe and Asia Pacific segments delivered year-over-year and sequential revenue growth, supported by higher weekly revenue run rates and improved bill rates. Performance was led by Europe, Japan, India, and the Philippines.
Consulting segment expansion: RGP is integrating Reference Point to enhance collaboration, streamline go-to-market execution, and strengthen CFO advisory and digital transformation offerings. This aims to deepen relationships with existing clients and expand reach to new clients.
Cost structure alignment: RGP reduced its cost structure to align with current revenue levels, including a reduction in force impacting 5% of management and administrative headcount, expected to yield annual savings of $6 million to $8 million.
SG&A expense reduction: Run rate SG&A expense improved by 15% year-over-year, driven by lower management compensation, reduced variable compensation, and decreased spending on travel, occupancy, and professional services.
Focus on competitive service offerings: RGP is focusing on providing relevant skills and solutions to clients at competitive prices to enhance value and differentiate from competitors.
AI and automation strategy: RGP is actively understanding how AI and automation impact client needs and integrating these technologies into its service offerings and internal processes.
Market Challenges: The market for services has been more challenging and uncertain, impacting the company's ability to generate positive momentum for consolidated revenue and adjusted EBITDA.
Cost Structure Alignment: There is a need to better align the cost structure with current revenue levels, requiring decisive actions to reduce costs and improve financial results.
On-Demand Segment Challenges: The On-Demand segment faces challenges in understanding and meeting clients' evolving needs, which is critical for improving financial results.
Consulting Business Scaling: Scaling the Consulting business requires hiring experienced professionals, which is a challenge in a competitive market for talent.
AI and Automation Impact: The company must adapt to how artificial intelligence and automation are impacting clients' businesses and the professional services they seek, as well as implement these technologies internally to enhance cost-effectiveness.
Revenue Decline: Consolidated revenue declined 18.4% year-over-year, with specific declines in the On-Demand and Consulting segments.
Gross Margin Pressure: Gross margin decreased to 37.1% from 38.5% in the prior year, driven by unfavorable leverage on indirect costs such as healthcare and paid time off.
SG&A Cost Management: The company is conducting a deeper assessment to streamline organizational structure and adopt automation to ensure the cost structure aligns with revenue levels.
Segment-Specific Revenue Declines: The On-Demand and Consulting segments experienced significant revenue declines, impacting overall financial performance.
Seasonality and Holiday Impact: Seasonality and midweek holidays negatively impacted revenue and gross margin in the third quarter.
Revenue Expectations: The company expects third-quarter revenues to be in the range of $105 million to $110 million, reflecting seasonality and current revenue backlog.
Gross Margin Projections: Gross margin for the third quarter is expected to be between 35% and 36%, influenced by seasonality, holiday pay, and employer payroll tax reset.
SG&A Expense Outlook: Run rate SG&A expense in the third quarter is projected to be between $40 million and $42 million, with additional non-run rate and noncash expenses of $6 million to $7 million.
Cost Reduction Initiatives: The company plans to implement cost reduction actions over a 12-month period, including a reduction in force expected to yield annual savings of $6 million to $8 million.
Consulting Segment Growth: The integration of Reference Point is expected to be completed by the end of the fiscal year, enhancing CFO advisory and digital transformation capabilities.
AI and Automation Implementation: RGP is actively implementing AI and automation tools to enhance cost-effectiveness in client service delivery and internal business support functions.
Market Positioning: The company aims to leverage its ability to provide finance, risk, operational performance, and technology solutions across On-Demand, Consulting, and Outsourced Services to remain competitive in the evolving market.
Quarterly dividend distributions: Totaled $2.3 million in the second quarter.
Share repurchase program: $79 million remaining at the end of the quarter for opportunistic share buybacks.
The earnings call highlighted declines in key segments, with significant year-over-year revenue drops in both On-Demand and Consulting segments. Despite some growth in Outsourced Services, the overall financial performance was weak. The Q&A section further revealed concerns about AI's impact on roles and unclear management responses on strategic vision. Additionally, healthcare costs impacted margins, and while SG&A expenses improved, the lack of strong positive catalysts and weak guidance suggest a negative stock price reaction in the near term.
The earnings call summary presents a mixed outlook. Financial performance shows improvement in gross margin and SG&A expenses, but adjusted EBITDA is low. The Q&A reveals pricing pressures and uncertain client spending, yet highlights potential in cross-selling and regional demand. The lack of specific guidance on cross-selling and a 16% revenue decline guidance for Q2 temper optimism. Overall, the stock is likely to remain stable, with no strong catalysts for significant movement.
The earnings call reveals mixed signals. Revenue and gross margin exceeded expectations, yet declines in Consulting and On-Demand segments raise concerns. The Q&A section highlights management's optimism about cross-selling and pipeline rebuilding, but also points to issues like sales team attrition and project delays. Overall, the positive aspects balance out the negatives, leading to a neutral outlook for the stock price over the next two weeks.
The earnings call reveals several negative factors: a decline in gross margin, significant goodwill impairment, and reduced revenue guidance. The Q&A section highlights client budget constraints, project delays, and market uncertainty, which further dampen sentiment. Despite some positive aspects like share repurchases and cash reserves, the overall outlook is negative due to competitive pressures and the sluggish economic environment.
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