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Consulting and workforce staffing company Resources Connection (RGP) endured a very difficult 2024 that saw its stock plunge by nearly 40%, but the company is off to a promising start in 2025 after delivering better-than-expected Q2 results. While the demand environment remained choppy during the quarter, RGP achieved sequential improvements across several key metrics, including revenue, gross margin, adjusted EBITDA, and SG&A expense. A combination of macro-related factors, such as interest rate cuts and the removal of uncertainty surrounding the election, and company-specific actions are driving the stronger results.

• On December 6, RGP reaffirmed its Q2 guidance of revenue of $135-$140 mln and gross margin of 36-37%. Bolstered by a rebound in Europe, which experienced an 18% qtr/qtr jump in revenue, and the positive impact of price increases in the Consulting segment, the company exceeded the high end of these guidance ranges. Specifically, revenue grew 6.3% qtr/qtr to $145.6 mln, while gross margin expanded by 200 bps qtr/qtr to 38.5%.
• Amid this challenging business climate, RGP implemented a reorganization in October that resulted in the creation of three separate business units: On-Demand, Consulting, and Outsourced Services. The aim of this initiative is to diversify the company's offerings, enabling it to perform well in both good times and bad, and to expand its total addressable market and cross-selling opportunities. CEO Kate Duchene stated that it successfully executed its diversification strategy in Q2 as clients looked to transform their businesses in the areas of supply chain management, human resources, technology, and finance.
• Simultaneously, RGP has streamlined its business and removed costs, including through workforce reductions. When the company reaffirmed its Q2 guidance in December, it also announced job cuts that are expected to generate cost savings of $4-$5 mln in 2H25. This followed a restructuring plan that was initiated in October 2023, which helped push SG&A expenses lower by 3.2% in Q2 to $51.3 mln. Along with the sequential improvement in revenue, the lower costs drove adjusted EBITDA higher by 322% qtr/qtr to $9.7 mln.
• Although RGP didn't offer formal guidance, it did provide some encouraging commentary regarding its outlook. For instance, CFO Bhadresh Patel stated that the company's pipeline is stable with a steady flow of opportunities, and that he remains cautiously optimistic about the macro environment. Furthermore, he noted that RGP is achieving notable rate increases, highlighting the improving demand for its services.

The main takeaway that while business conditions are still far from optimal, demand is gradually improving and RGP's reorganization and streamlining actions are now paying dividends.