Resources Connection Q4 revenue falls as demand softens

Overview

• U.S. professional services firm's fiscal Q4 revenue fell 24% yr/yr amid softer demand

• Adjusted EBITDA for fiscal Q4 turned negative, reflecting lower consultant utilization and negative operating leverage

• Company attributed declines to reduced demand, shorter quarter, and sale of Sitrick unit

Outlook

• Company expects recent investments to drive revenue growth as they mature through a ramp-up period

• Market conditions seen as broadly consistent with prior quarter; Europe remains weak

• Company to focus on evolving On-Demand Talent, scaling Consulting, and leveraging AI

Result Drivers

• SOFTER DEMAND - Co said continued weak demand for traditional operational accounting skills and longer sales cycles for consulting projects weighed on revenue, especially in On-Demand Talent and Consulting segments

• LOWER BILLABLE HOURS - Qtr included one less week of billable activity and the sale of Sitrick, both contributing to a 20.9% decrease in billable hours

• NEGATIVE OPERATING LEVERAGE - Gross margin declined due to lower consultant utilization and negative operating leverage, despite a slight improvement in pay bill ratio

Company press release: ID:nBw9v46X8a

Key Details

Analyst Coverage

• The current average analyst rating on the shares is "buy" and the breakdown of recommendations is 2 "strong buy" or "buy", 1 "hold" and 1 "sell" or "strong sell"

• The average consensus recommendation for the business support services peer group is "buy"

• Wall Street's median 12-month price target for Resources Connection Inc is $6.00, about 28.8% above its July 21 closing price of $4.66

• The stock recently traded at 155 times the next 12-month earnings vs. a P/E of 14 three months ago

Reuters Recommended Reads

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(This story was created using Reuters automation and AI based on LSEG and company data. It was checked and edited by a Reuters journalist prior to publication.)