RESOURCES CONNECTION, INC.

Previous wording

The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the three and six months ended November 23, 2024 should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended May 25, 2024 filed with the Securities and Exchange Commission (“SEC”).

Current wording

The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources for the three and nine months ended February 22, 2025 should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended May 25, 2024 filed with the Securities and Exchange Commission (“SEC”).

Previous wording

Building upon the foundation we established through fiscal 2024, we will continue to execute the following enterprise growth drivers in fiscal 2025:

Current wording

Building upon the foundation we established in fiscal 2024, we are continuing to execute the following enterprise growth drivers in fiscal 2025:

Previous wording

Evolve and execute under our new business segments –Our first area of focus for fiscal 2025 is to evolve our business by focusing on three core engagement models: On-Demand Talent, Consulting, and Outsourced Services. Our On-Demand Talent business is branded “On-Demand by RGPTM,” our Consulting business is called “Veracity by RGPTM” and our Outsourced Services business is Countsy®. We expect this shift to reduce market and buyer confusion, enhance our ability to focus on our core strengths and areas of expertise, and provide greater optionality for our buying set to engage with RGP. This new organizational structure will enable us to better serve our clients along their transformation journey by providing targeted skill sets, high value consulting services, and outsourced delivery under a single umbrella. Our approach combines flexibility, best of breed technology, and human-centered design with functional and subject matter expertise. This year, we will clarify and operationalize these models to unlock the cross selling of our diversified capabilities throughout our blue-chip, loyal and longstanding client base. Part of the growth plan for our consulting business includes leveraging On-Demand by RGPTM for greater financial flexibility and better skill set alignment. Our growing consulting capability provides us with deeper visibility into our clients’ transformation agendas to drive greater opportunity for our on-demand execution capabilities. In our outsourced services business, we have expanded Countsy’s total addressable market beyond the start-up ecosystem to serve the finance, accounting and human resources needs surrounding spin-outs and carve-outs. Europe and Asia will continue to operate in the geographic regions as one business segment, serving our clients with consulting capabilities and On-Demand Talent. Evolving our business through this reorganization ensures that we are well positioned to execute and succeed as the macro environment recovers.

Current wording

Evolve and execute under our new business segments –Our first area of focus for fiscal 2025 has been to evolve our business by focusing on three core engagement models: On-Demand Talent, Consulting, and Outsourced Services. Our On-Demand Talent business is branded “On-Demand by RGPTM,” our Consulting business is called “Veracity by RGPTM” and our Outsourced Services business is Countsy®. We expect this shift to reduce market and buyer confusion, enhance our ability to focus on our core strengths and areas of expertise, and provide greater optionality for our buying set to engage with RGP. This new organizational structure has enabled us to better serve our clients along their transformation journey by providing targeted skill sets, high value consulting services, and outsourced delivery under a single umbrella. Our approach combines flexibility, best of breed technology, and human-centered design with functional and subject matter expertise. This fiscal year, we have aimed to clarify and operationalize these models to unlock the cross selling of our diversified capabilities throughout our blue-chip, loyal and longstanding client base. Part of the growth plan for our consulting business includes leveraging On-Demand by RGPTM for greater financial flexibility and better skill set alignment. Our growing consulting capability provides us with deeper visibility into our clients’ transformation agendas to drive greater opportunity for our on-demand execution capabilities. In our outsourced services business, we have expanded Countsy’s total addressable market beyond the start-up ecosystem to serve the finance, accounting and human resources needs surrounding spin-outs and carve-outs. Europe and Asia has continued to operate in the geographic regions as one business segment, serving our clients with consulting capabilities and On-Demand Talent. Evolving our business through this reorganization ensures that we are well positioned to execute and succeed as the macro environment recovers.

Previous wording

Launch and activate new brand –Our second focus area for this fiscal year is to launch and activate a new brand identity and brand architecture in the marketplace. The central objective behind our brand refresh is to clarify to stakeholders what we do, who we serve, when to call us, and the impact we deliver. Under this new architecture, RGP serves as an enterprise parent brand, representing a family of brands that are comprised of On-Demand by RGPTM, Veracity by RGPTM and Countsy by RGPTM. We have refreshed our digital properties to reflect our new brand identity and align them with our new brand architecture as part of this effort. We believe these changes will result in clarity around our full suite of capabilities and create greater understanding of the value we can bring to our clients across a broader spectrum.

Current wording

Launch and activate new brand –Our second focus area for this fiscal year has been to launch and activate a new brand identity and brand architecture in the marketplace. The central objective behind our brand refresh was to clarify to stakeholders what we do, who we serve, when to call us, and the impact we deliver. Under this new architecture, RGP serves as an enterprise parent brand, representing a family of brands that are comprised of On-Demand by RGPTM, Veracity by RGPTM and Countsy by RGPTM. We have refreshed our digital properties to reflect our new brand identity and align them with our new brand architecture as part of this effort. We believe these changes will result in clarity around our full suite of capabilities and create greater understanding of the value we can bring to our clients across a broader spectrum.

Previous wording

Enhance digital and AI capabilities – Our third focus area for fiscal 2025 is continuing to expand and enhance our technology, digital and data capabilities across all business units. The increased adoption of digital tools, remote work styles, generative artificial intelligence, and globalization is driving new areas of need within our client base. We are actively adding skilled on-demand and consulting professionals in areas such as technology migration, cybersecurity, data modernization and data privacy, and user experience to proactively meet these evolving client needs. Under the Veracity by RGPTM consulting business we are bringing together our digital transformation business and the deep functional expertise within RGP’s legacy Project Consulting Services (PCS) group. We believe this combined offering will uniquely position us to offer our clients integrated end-to-end consulting solutions in the digital arena.

Current wording

Enhance digital and AI capabilities – Our third focus area for fiscal 2025 has been continuing to expand and enhance our technology, digital and data capabilities across all business units. The increased adoption of digital tools, remote work styles, generative artificial intelligence, and globalization is driving new areas of need within our client base. We are actively adding skilled on-demand and consulting professionals in areas such as technology migration, cybersecurity, data modernization and data privacy, and user experience to proactively meet these evolving client needs. Under the Veracity by RGPTM consulting business we are bringing together our digital transformation business and the deep functional expertise within RGP’s legacy Project Consulting Services (PCS) group. We believe this combined offering will uniquely position us to offer our clients integrated end-to-end consulting solutions in the digital arena.

Previous wording

On a macro level, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets and fluctuations in currency exchange rates have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which has adversely impacted our financial results. We expect these conditions will continue through the rest of fiscal 2025. While we are not able to fully predict the potential impact, we continue to see caution in professional services spending within our client base. If these conditions persist and a prolonged economic downturn or recession develops, it could result in further decline in billable hours and negatively impact our bill rates which would adversely affect our financial results and operating cash flows.

Current wording

On a macro level, uncertain macroeconomic conditions including ambiguity around interest rates, softening labor markets, fluctuations in currency exchange rates, recent government and policy changes implemented in the United States, and tariff actions and uncertainties related to trade wars have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures, which has adversely impacted our financial results. We expect these conditions will continue through at least the rest of fiscal 2025. While we are not able to fully predict the potential impact, we continue to see caution in professional services spending within our client base. Additionally, in connection with recent actions we have taken to execute on our diversified services strategy for long term growth and stability, we have experienced both voluntary and involuntary attrition, including within our sales team, which may affect our near-term revenue performance. If these conditions or impacts persist or if a prolonged economic downturn or recession develops, it could result in further decline in billable hours and negatively impact our bill rates which would adversely affect our financial results and operating cash flows.

Previous wording

The Company performed interim quantitative goodwill impairment assessments for its reporting units, each of which is also a reporting segment, during the three months ended November 23, 2024 and August 24, 2024, which resulted in pre-tax goodwill impairment charges of $79.5 million and $3.9 million, respectively. In the second quarter of fiscal 2025, the Company experienced a decrease in its market capitalization, along with slower than expected recovery in business performance within the On-Demand Talent segment and Europe and Asia Pacific segment. As a result, the Company performed a goodwill impairment assessment for each of its reporting units with associated goodwill, in which the estimated fair values of each reporting unit were compared to its respective carrying amounts. Based on this assessment, the Company recorded a goodwill impairment charge of $57.8 million in the On-Demand Talent segment and $21.7 million for the Europe and Asia Pacific segment for the second quarter of fiscal 2025.

Current wording

The Company performed interim quantitative goodwill impairment assessments for its reporting units, each of which is also a reporting segment, during the three months ended February 22, 2025, November 23, 2024 and August 24, 2024, which resulted in pre-tax goodwill impairment charges of $42.0 million, $79.5 million and $3.9 million, respectively. During the third quarter of fiscal 2025, the Company continued to experience slow recovery in business performance within the On-Demand Talent and Consulting segments. As a result, the Company performed a goodwill impairment assessment for each of its reporting units with associated goodwill, in which the estimated fair values of each reporting unit were compared to its respective carrying amounts. Based on this assessment, the Company recorded a goodwill impairment charge of $12.4 million in the On-Demand Talent segment and $29.6 million for the Consulting segment for the third quarter of fiscal 2025.

Previous wording

In performing the goodwill impairment assessments, the Company considers the assumptions used in determining the estimated fair values of its reporting units to be reasonable and appropriate. However, the assumptions are complex and subjective, and additional adverse changes in a key assumption or a combination of key assumptions may significantly affect the Company’s assessment of the fair value and goodwill impairment. These assumptions include, among other things, a failure to meet expected earnings or other financial plans; changes in the discount rate, the terminal growth rate or tax rates; or significant changes in industry or economic trends. If the assumptions noted above adversely change, negative macroeconomic conditions worsen or the Company’s market capitalization decreases for a sustained period of time, the Company may be required to perform additional impairment analysis that could result in additional impairment charges and materially adversely affect the Company’s financial condition and results of operations. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Current wording

In performing the goodwill impairment assessments, the Company considers the assumptions used in determining the estimated fair values of its reporting units to be reasonable and appropriate. However, the assumptions are complex and subjective, and additional adverse changes in a key assumption or a combination of key assumptions may significantly affect the Company’s assessment of the fair value and goodwill impairment. These assumptions include, among other things, a failure to meet expected earnings or other financial plans; changes in the discount rate, the terminal growth rate or tax rates; or significant changes in industry or economic trends. If the assumptions noted above adversely change, negative macroeconomic conditions worsen or the Company’s market capitalization decreases for a sustained period of time, the Company may be required to perform additional impairment analysis that could result in additional impairment charges and materially adversely affect the Company’s financial condition and results of operations. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information about our goodwill impairment.

Previous wording

•Adjusted EBITDA is calculated as EBITDA excluding stock-based compensation expense, technology transformation costs, acquisition costs, goodwill impairment, gain on sale of assets and restructuring adjustments. We also present herein Adjusted EBITDA at the segment level as a measure used to assess the performance of our segments. Segment Adjusted EBITDA excludes certain shared corporate administrative costs that are not practical to allocate. See Note 14 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

•Adjusted EBITDA is calculated as EBITDA excluding stock-based compensation expense, amortized ERP system costs, technology transformation costs, acquisition costs, goodwill impairment, gain on sale of assets and restructuring adjustments. We also present herein Adjusted EBITDA at the segment level as a measure used to assess the performance of our segments. Segment Adjusted EBITDA excludes certain shared corporate administrative costs that are not practical to allocate. See Note 14 – Segment Information and Enterprise Reporting in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

(1)Technology transformation costs represent costs included in net income related to our initiative to upgrade our technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

Current wording

(2)Technology transformation costs represent costs included in net income related to our initiative to upgrade our technology platform globally, including a cloud-based enterprise resource planning system and talent acquisition and management systems. Such costs primarily include hosting and certain other software licensing costs, third-party consulting fees and costs associated with dedicated internal resources that are not capitalized.

Previous wording

(2)Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 – Acquisitions in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion about this acquisition.

Current wording

(3)Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, cash retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms. See Note 4 – Acquisitions in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion about this acquisition.

Previous wording

(5) Goodwill impairment charge recognized during the three and six months ended November 23, 2024 were related to the On-Demand Talent and Europe Asia Pacific segments. See Note 6 – Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further discussion.

Current wording

(4)Goodwill impairment charges recognized during the three and nine months ended February 22, 2025 were related to the On-Demand Talent, Consulting and, for the nine-month period only, Europe and Asia Pacific segments.

Previous wording

The following table sets forth our Consolidated Statements of Operations data for thethree and six months ended November 23, 2024 and November 25, 2023, respectively. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages).

Current wording

The following table sets forth our Consolidated Statements of Operations data for thethree and nine months ended February 22, 2025 and February 24, 2024. These historical results are not necessarily indicative of future results. Our operating results for the periods indicated are expressed as a percentage of revenue (in thousands, except percentages).

Previous wording

Revenue. Revenue decreased $17.5 million, or 10.7%, to $145.6 million in the second quarter of fiscal 2025 from $163.1 million in the second quarter of fiscal 2024. On a same-day constant currency basis, revenue decreased by $21.5 million, or 13.2%. Similar to previous quarters, the demand environment continued to be choppy. While certain pockets within the business have started to show some improvement, which we attribute to improving business confidence post-election and interest rate cuts, clients are still measured in their decisions to move forward with transformation projects or filling professional interim needs. Timelines for opportunities to close in the pipeline continue to be extended compared to previous years. Compared to the prior year quarter, billable hours decreased by 11.2%, while the average bill rate increased by 0.8% (also 0.8% on a constant currency basis). The year-over-year improvement in average bill rate is attributable to an ongoing focus on value-based pricing, although average bill rate will continue to reflect the global revenue mix with a higher proportion of revenue being delivered in Asia Pacific and Mexico where average bill rates are significantly lower than the United States (“U.S.”) and Europe.

Current wording

Revenue. Revenue decreased $21.9 million, or 14.5%, to $129.4 million in the third quarter of fiscal 2025 from $151.3 million in the third quarter of fiscal 2024. On a same-day constant currency basis, revenue decreased by $16.9 million, or 11.2%. The demand environment remained choppy and has not shown consistent signs of improving. Clients continued to be cautious and selective about moving forward with transformation projects or filling professional interim roles. In addition, the mid-week timing of both the Christmas and New Year's holidays caused a more significant impact on the third quarter revenue compared to the prior year fiscal quarter. Compared to the prior year quarter, billable hours decreased by 17.0%, while the average bill rate increased by 3.4% (or 4.2% on a constant currency basis). The year-over-year improvement in average bill rate is attributable to an ongoing focus on value-based pricing, and a shift in revenue mix towards higher value consulting projects. Additionally, average bill rates continue to reflect the global revenue mix, which currently includes a higher proportion of revenue generated in Asia Pacific, where bill rates are significantly lower than in the United States (“U.S.”) and Europe.

Previous wording

Direct Cost of Services. Direct cost of services decreased $10.1 million, or 10.2%, to $89.5 million for the second quarter of fiscal 2025 from $99.7 million in the second quarter of fiscal 2024. The decrease in direct cost of services was primarily attributable to a 11.2% decline in billable hours as a result of reduced client spending as noted above, partially offset by a 1.7% (also 1.7% on a constant currency basis) increase in average pay rate during the quarter ended November 23, 2024 compared to the prior year quarter.

Current wording

Direct Cost of Services. Direct cost of services decreased $11.2 million, or 11.8%, to $84.1 million for the third quarter of fiscal 2025 from $95.3 million in the third quarter of fiscal 2024. The decrease in direct cost of services was primarily attributable to a 17.0% decline in billable hours as a result of reduced client spending as noted above, while the average pay rate remained steady (or increased by 1.7% on a constant currency basis) during the quarter ended February 22, 2025 compared to the prior year quarter.

Previous wording

Direct cost of services as a percentage of revenue was 61.5% for the second quarter of fiscal 2025 compared to 61.1% for the second quarter of fiscal 2024. The increased percentage compared to the prior year quarter was primarily due higher pay/bill ratio and lower utilization of salaried consultants, partially offset by a favorable impact from the timing of the Thanksgiving holidays (not in the second quarter of fiscal 2025). We continue to seek improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.

Current wording

Direct cost of services as a percentage of revenue was 64.9% for the third quarter of fiscal 2025 compared to 63.0% for the third quarter of fiscal 2024. The increased percentage compared to the prior year quarter was primarily due to additional holiday pay on Thanksgiving in the third quarter of fiscal 2025. In addition, the mid-week timing of both the Christmas and New Year’s holidays caused lower utilization of our salaried consultants. These adverse impact was partially offset by an improved pay/bill ratio. We continue to seek improvement in the overall pay/bill ratio and indirect cost leverage through strategic pricing, while offering competitive compensation and benefits to our consultants to attract and retain the best talent in the marketplace.

Previous wording

The number of consultants on assignment at the end of the second quarter of fiscal 2025 was 2,639 compared to 3,167 at the end of the second quarter of fiscal 2024.

Current wording

The number of consultants on assignment at the end of the third quarter of fiscal 2025 was 2,514 compared to 2,765 at the end of the third quarter of fiscal 2024.

Previous wording

Management and administrative headcount was 749 at the end of the second quarter of fiscal 2025 and 850 at the end of the second quarter of fiscal 2024. Management and administrative headcount includes full time equivalent headcount for our seller-doer group, a consulting term for a professional who balances business development activities with billable work for clients, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full time equivalent headcount.

Current wording

Management and administrative headcount was 722 at the end of the third quarter of fiscal 2025 and 830 at the end of the third quarter of fiscal 2024. Management and administrative headcount includes full time equivalent headcount for our seller-doer group, a consulting term for a professional who balances business development activities with billable work for clients, which is determined by utilization levels achieved by the seller-doers. Any unutilized time is converted to full time equivalent management and administrative headcount.

Previous wording

Goodwill Impairment. During the second quarter of fiscal 2025, in light of the decline in the Company's market capitalization, along with slower than expected recovery in business performance within the Company’s On-Demand Talent segment and Europe and Asia Pacific segment, the Company conducted a goodwill impairment analysis and recorded a non-cash impairment charge of $79.5 million, which included $57.8 million recorded in the On-Demand Talent segment and $21.7 million recorded in the Europe and Asia Pacific segment. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further information.

Current wording

Goodwill Impairment. During the third quarter of fiscal 2025, due to the slow recovery in business performance within the Company’s On-Demand Talent and Consulting segments, the Company conducted a goodwill impairment analysis and recorded a non-cash impairment charge of $42.0 million, which included $12.4 million for the On-Demand Talent segment and $29.6 million for the Consulting segment. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further information.

Previous wording

Income Taxes. Income tax benefit was $7.7 million, reflecting an effective tax rate of 10.1%, for the second quarter of fiscal 2025 compared to an income tax expense of $3.8 million, or an effective tax rate of 43.4%, for the second quarter of fiscal 2024. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax benefit in the quarter ended November 23, 2024 was primarily attributed to the Company’s pretax loss. The lower effective benefit rate was due to the non-deductible portion of the goodwill impairment. The higher effective tax rate in the second quarter of fiscal 2024 was attributed primarily to a nonrecurring increase in forfeiture of stock options, coupled with the capitalization of acquisition related costs for tax purposes.

Current wording

Income Taxes. Income tax benefit was $5.6 million, reflecting an effective tax rate of 11.3%, for the third quarter of fiscal 2025 compared to an income tax expense of $1.9 million, or an effective tax rate of 43.2%, for the third quarter of fiscal 2024. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax benefit in the quarter ended February 22, 2025 was primarily attributed to the Company’s pretax loss. The lower effective tax rate in the third quarter of fiscal 2025 was due to the non-deductible portion of the goodwill impairment, coupled with the $2.2 million establishment of a valuation allowance on the Company’s UK entity. The higher effective tax rate in the third quarter of fiscal 2024 resulted largely from a lower pretax income base increasing the tax expense ratio.

Previous wording

We recognized a tax benefit of approximately $0.8 million and $1.0 million during the second quarters of fiscal 2025 and fiscal 2024, respectively, associated with the exercise of nonqualified stock options, vesting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based stock units (“PSUs”), and disqualifying dispositions by employees of shares acquired under the Company's Employee Stock Purchase Plan (“ESPP”).

Current wording

We recognized a tax benefit of approximately $0.2 million and $0.1 million during the third quarter of fiscal 2025 and fiscal 2024, respectively, associated with the exercise of nonqualified stock options, vesting of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based stock units (“PSUs”), and disqualifying dispositions by employees of shares acquired under the Company's Employee Stock Purchase Plan (“ESPP”).

Previous wording

Revenue. Revenue decreased $50.7 million, or 15.2%, to $282.6 million for the six months ended November 23, 2024 from $333.3 million for the six months ended November 25, 2023. On a same-day constant currency basis, revenue for the six months ended November 23, 2024 decreased by $53.9 million, or 16.2% compared to the six months ended November 25, 2023. The decrease is primarily due to reduced client spending across a majority of our markets, client segments and solution offerings as a result of the persistently challenging global macroeconomic environment. The time to close opportunities in the pipeline continued to be protracted, typical in a tougher macro environment when clients are more hesitant to spend on professional services. Billable hours decreased by 13.2% and the average bill rate declined by 1.6% (also 1.6% on a constant currency basis) from the six months ended November 25, 2023.

Current wording

Revenue. Revenue decreased $72.6 million, or 15.0%, to $412.0 million for the nine months ended February 22, 2025 from $484.6 million for the nine months ended February 24, 2024. On a same-day constant currency basis, revenue for the nine months ended February 22, 2025 decreased by $70.7 million, or 14.6%, compared to the nine months ended February 24, 2024. The decrease is primarily due to reduced client spending across a majority of our markets, client segments and solution offerings as a result of the persistently challenging global macroeconomic environment. The time to close opportunities in the pipeline continued to be protracted, typical in a tougher macro environment when clients are more hesitant to spend on professional services. Billable hours decreased by 14.4% and the average bill rate decreased by 0.8% (or remained flat on a constant currency basis) from the nine months ended February 24, 2024.

Previous wording

Direct Cost of Services. Direct cost of services decreased $26.3 million, or 13.0%, to $176.5 million for the six months ended November 23, 2024 from $202.8 million for the six months ended November 25, 2023. The decrease in direct cost of services was primarily attributable to a 13.2% decline in billable hours as a result of reduced client spending as noted above and a 1.7% decrease (or flat on a constant currency basis) in average pay rate in the six months ended November 23, 2024 compared to the six months ended November 25, 2023.

Current wording

Direct Cost of Services. Direct cost of services decreased $37.6 million, or 12.6%, to $260.5 million for the nine months ended February 22, 2025 from $298.1 million for the nine months ended February 24, 2024. The decrease in direct cost of services was primarily attributable to a 14.4% decline in billable hours as a result of reduced client spending as noted above while the average pay rate remained flat (or increased by 1.7% on a constant currency basis) in the nine months ended February 22, 2025 compared to the nine months ended February 24, 2024.

Previous wording

Direct cost of services as a percentage of revenue was 62.5% for the six months ended November 23, 2024 compared to 60.9% for the six months ended November 25, 2023. The increased percentage compared to the prior year period was primarily due to an 80 basis point increase in the pay/bill ratio based on a constant currency, lower utilization of salaried consultants and less favorable leverage on indirect cost of services as a result of lower revenue, partially offset by the favorable timing of the Thanksgiving holiday in the U.S. (not in the six months ended November 25, 2023).

Current wording

Direct cost of services as a percentage of revenue was 63.2% for the nine months ended February 22, 2025 compared to 61.5% for the nine months ended February 24, 2024. The increased percentage compared to the prior year period was primarily due to a 40 basis point increase (or 80 basis point increase on a constant currency basis) in the pay/bill ratio, lower utilization of salaried consultants and less favorable leverage on cost of services as a result of lower revenue.

Previous wording

Selling, General and Administrative Expenses. SG&A was $100.2 million, or 35.5% of revenue, for the six months ended November 23, 2024 compared to $112.9 million, or 34.0% of revenue, for the six months ended November 25, 2023. The $12.7 million decrease in SG&A year-over-year was primarily attributed to lower employee compensation expense of $7.6 million largely resulting from the 2023 U.S. Restructuring Plan initiated in October 2023 and ongoing alignment of resource capacity to demand, a $3.4 million gain on the sale of the Irvine office building, a decrease of $2.0 million of employee termination benefits in connection with the 2023 U.S. Restructuring Plan in the previous fiscal year, a $1.0 million reduction in employee health benefit expenses and a decrease of $0.8 million in computer software and certain professional services fees. These reductions were partially offset by a $0.7 million increase in costs related to acquisitions and a $0.5 million increase in bad debt expense.

Current wording

Selling, General and Administrative Expenses. SG&A was $151.4 million, or 36.7% of revenue, for the nine months ended February 22, 2025 compared to $162.5 million, or 33.5% of revenue, for the nine months ended February 24, 2024. The $11.1 million decrease in SG&A year-over-year was primarily attributed to lower employee compensation expense of $9.2 million largely resulting from the restructuring plans and ongoing alignment of resource capacity to demand, a $3.4 million gain on the sale of the Irvine office building, and a decrease of $1.1 million of marketing expenses. These reductions were partially offset by an increase of $1.3 million in computer software and certain professional services fees, a $1.2 million increase in stock-based compensation expenses related to new equity awards granted, and a $1.0 million increase in costs related to acquisitions.

Previous wording

Goodwill Impairment. During the first quarter of fiscal 2025, the Company completed a goodwill impairment assessment concurrent with its segment change and concluded that the carrying value of the Europe and Asia Pacific segment was in excess of its fair value. As a result, the Company recorded a non-cash impairment charge of $3.9 million. In the second quarter of fiscal 2025, in light of the decline in the Company's market capitalization, along with slower than expected recovery in business performance within the Company’s On-Demand Talent segment and Europe and Asia Pacific segment, the Company conducted a goodwill impairment analysis and recorded a non-cash impairment charge of $79.5 million in the On-Demand Talent and Europe and Asia Pacific segments. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further information.

Current wording

Goodwill Impairment. During the first quarter of fiscal 2025, the Company completed a goodwill impairment assessment concurrent with its segment change and concluded that the carrying value of the Europe and Asia Pacific segment was in excess of its fair value. As a result, the Company recorded a non-cash impairment charge of $3.9 million. During the second quarter of fiscal 2025, in light of a decline in the Company's market capitalization, along with slower than expected recovery in business performance within the Company’s On-Demand Talent segment and Europe and Asia Pacific segment, the Company conducted a goodwill impairment analysis and recorded a non-cash impairment charge of $79.5 million in the On-Demand Talent and Europe and Asia Pacific segments. During the third quarter of fiscal 2025, due to the slow recovery in business performance within the Company’s On-Demand Talent segment and Consulting segment, the Company conducted a goodwill impairment analysis and recorded a non-cash impairment charge of $42.0 million. See Note 6 –Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further information.

Previous wording

Income Taxes. Income tax benefit was $6.7 million, reflecting an effective tax rate of 8.2%, for the six months ended November 23, 2024 compared to income tax expense of $5.8 million, or an effective tax rate of 42.1%, for the six months ended November 25, 2023. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax benefit in the six months ended November 23, 2024 was primarily attributed to the Company’s pretax loss. The lower effective benefit rate was due to the non-deductible portion of the goodwill impairment. The higher effective tax rate in the six months ended November 25, 2023 was attributed primarily to a nonrecurring increase in forfeiture of stock options, coupled with the capitalization of acquisition related costs for tax purposes.

Current wording

Income Taxes. Income tax benefit was $12.3 million, reflecting an effective tax rate of 9.4%, for the nine months ended February 22, 2025 compared to income tax expense of $7.8 million, or an effective tax rate of 42.4%, for the nine months ended February 24, 2024. We record tax expense based upon actual results versus a forecasted tax rate because of the volatility in our international operations that span numerous tax jurisdictions. The income tax benefit in the nine months ended February 22, 2025 was primarily attributed to the Company’s pretax loss. The lower effective tax rate in the nine months ended February 22, 2025 was due to the non-deductible portion of the goodwill impairment, coupled with the $2.2 million establishment of a valuation allowance on the Company’s UK entity. The higher effective tax rate in the nine months ended February 24, 2024 was attributed primarily to a nonrecurring increase in forfeiture of stock options, coupled with the capitalization of acquisition related costs for tax purposes.

Previous wording

The Company recognized a tax benefit of approximately $1.3 million and $1.2 million for the six months ended November 23, 2024 and November 25, 2023, respectively, associated with the exercise of nonqualified stock options, vesting of RSAs, RSUs, PSUs, and disqualifying dispositions by employees of shares acquired under the ESPP.

Current wording

The Company recognized a tax benefit of approximately $1.5 million and $1.3 million for the nine months ended February 22, 2025 and February 24, 2024, respectively, associated with the exercise of nonqualified stock options, vesting of RSAs, RSUs, PSUs, and disqualifying dispositions by employees of shares acquired under the ESPP.

Previous wording

The following table presents our current operating results by segment for the three and six months ended November 23, 2024 and November 25, 2023, respectively (in thousands, except percentages and average bill rates).

Current wording

The following table presents our operating results by segment for the three and nine months ended February 22, 2025 and February 24, 2024, respectively (in thousands, except percentages and average bill rates).

Previous wording

(4) Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms.

Current wording

(5) Acquisition costs primarily represent costs included in net income related to our business acquisition. These costs include transaction bonuses, cash retention bonus accruals, and fees paid to the Company's broker, legal counsel, and other professional services firms.

Previous wording

(3)Goodwill impairment charge recognized during the three and six months ended November 23, 2024 were related to the On-Demand Talent and Europe and Asia Pacific segments. See Note 6 – Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further discussion.

Current wording

(6) Goodwill impairment charges recognized during the three and nine months ended February 22, 2025 were related to the On-Demand Talent, Consulting, and, for the nine-month period only, Europe and Asia Pacific segments. See Note 6 – Goodwill and Intangible Assets in the Notes to Consolidated Financial Statements for further discussion.

Previous wording

On-Demand Talent– Revenue in the On-Demand Talent segment declined by $17.5 million or 24.7%, to $53.5 million in the second quarter of fiscal 2025 compared to $70.9 million in the second quarter of fiscal 2024. The decline was primarily due to lower demand across solution areas amongst economic uncertainty, with billable hours decreasing by 21.7% and a 2.8% (also 2.8% on a constant currency basis) decline in average bill rate. The reduction in average bill rate was primarily due to revenue mix weighing more heavily in Mexico which carries significantly lower average bill rate. For the six months ended November 23, 2024, On-Demand Talent segment revenue decreased by $43.0 million or 28.9%, to $105.9 million compared to $148.9 million for the six months ended November 25, 2023, primarily as a result of a 26.2% decrease in billable hours and a 3.5% (or 2.8% on a constant currency basis) decrease in average bill rate due to revenue mix weighing more heavily in Mexico.

Current wording

On-Demand Talent– Revenue in the On-Demand Talent segment declined by $17.1 million or 26.6%, to $47.1 million in the third quarter of fiscal 2025 compared to $64.2 million in the third quarter of fiscal 2024. The decline was primarily due to lower demand across solution areas amongst economic uncertainty, with billable hours decreasing by 24.8% and a 2.1% (or 1.4% on a constant currency basis) decline in average bill rate. Demand for interim support remained challenged in the third quarter due in part to the labor market trend with less talent movement across employers, which has historically been a generator for demand in this segment. For the nine months ended February 22, 2025, On-Demand Talent segment revenue decreased by $60.1 million or 28.2%, to $153.0 million compared to $213.1 million for the nine months ended February 24, 2024, primarily as a result of a 25.7% decrease in billable hours and a 2.8% (also 2.8% on a constant currency basis) decrease in average bill rate due to revenue mix weighing more heavily in Mexico.

Previous wording

Consulting – Revenue in the Consulting segment increased by $1.6 million or 2.7%, to $60.6 million in the second quarter of fiscal 2025 compared to $59.1 million in the second quarter of fiscal 2024. The growth was primarily due to a 6.2% (also 6.2% on a constant currency basis) increase in the average bill rate, partially offset by the billable hours declining by 3.6%. The improvement in average bill rate was largely attributable to the Company’s value pricing initiative as well as the addition of Reference Point (acquired in the first fiscal quarter of 2025) which carries a significantly higher average bill rate. Reference point contributed $4.8 million of revenue during the second fiscal quarter. For the six months ended November 23, 2024, Consulting segment revenue of $115.7 million remained relatively flat compared to the six months ended November 25, 2023.

Current wording

Consulting – Revenue in the Consulting segment declined by $3.2 million or 5.8%, to $52.6 million in the third quarter of fiscal 2025 compared to $55.8 million in the third quarter of fiscal 2024. The decline was primarily due to an 18.8% decrease in billable hours, partially offset by a 12.8% (or 13.5% on a constant currency basis) increase in the average bill rate largely as a result of the Company’s value-based pricing initiative as well as a change in geographic revenue mix. Additionally, the current quarter results include the addition of Reference Point (acquired in the first fiscal quarter of 2025) which carries a significantly higher average bill rate. Reference Point contributed $4.0 million of revenue during the third fiscal quarter of 2025. For the nine months ended February 22, 2025, Consulting segment revenue decreased by $3.5 million or 2.0%, to $168.3 million compared to $171.7 million for the nine months ended February 24, 2024, primarily as a result of a 8.2% decrease in billable hours partially offset by a 6.3% (or 6.3% on a constant currency basis) increase in average bill rate. Reference Point contributed $11.5 million of revenue during the nine months ended February 22, 2025.

Previous wording

Europe and Asia Pacific – Revenue in the Europe and Asia Pacific segment declined by $2.1 million or 9.6%, to $19.7 million in the second quarter of fiscal 2025 compared to $21.8 million in the second quarter of fiscal 2024. The average bill rate for the Europe and Asia Pacific segment declined by 3.3% (or 6.6% on a constant currency basis) and the billable hours decreased by 5.3% year-over-year. This segment experienced delays in decision making and project starts as clients sorted through their own organizational challenges amidst economic uncertainty most notably in Europe. Asia Pacific performed relatively more resiliently than Europe, large global clients continued to drive demand in this region. Pricing competition remained fierce across the region, from the big 4 firms as well as local boutique firms. Additionally, with a higher proportion of revenue in Asia Pacific in the second quarter of fiscal 2025, which carries significantly lower average bill rates. For the six months ended November 23, 2024, Europe and Asia Pacific segment revenue decreased by $7.4 million or 16.4%, to $37.7 million compared to $45.1 million for the six months ended November 25, 2023, primarily as a result of a 6.5% decrease in billable hours and a 9.5% (also 9.5% on a constant currency basis) decrease in average bill rate.

Current wording

Europe and Asia Pacific – Revenue in the Europe and Asia Pacific segment declined by $1.1 million or 5.4%, to $18.6 million in the third quarter of fiscal 2025 compared to $19.6 million in the third quarter of fiscal 2024. The decline was primarily due to a 5.5% decrease in billable hours, which was offset by a 1.7% (or 5.2% on a constant currency basis) increase in the average bill rate largely as a result of the Company’s value-based pricing initiative as well as a change in geographic revenue mix. The regions continued to experience delays in decision making and project starts as clients sorted through their own organizational challenges amidst economic uncertainty. For the nine months ended February 22, 2025, Europe and Asia Pacific segment revenue decreased by $8.4 million or 13.0%, to $56.3 million compared to $64.7 million for the nine months ended February 24, 2024, primarily as a result of a 6.2% decrease in billable hours and a 6.5% (or 6.5% on a constant currency basis) decrease in average bill rate. Pricing competition remained fierce across the regions, from the Big 4 firms as well as local boutique firms. Additionally, this segment has seen a higher proportion of revenue in Asia Pacific in the third quarter of fiscal 2025, which carries significantly lower average bill rates.

Previous wording

Outsourced Services – Revenue in the Outsourced Services segment increased by $0.4 million or 4.0%, to $9.4 million in the second quarter of fiscal 2025 compared to $9.1 million in the second quarter of fiscal 2024. The growth was primarily due to a 2.2% (or 2.2% on a constant currency basis) increase in the average bill rate and a 1.7% increase in the billable hours. For the six months ended November 23, 2024, Outsourced Services segment revenue increased by $0.4 million or 2.3%, to $18.9 million compared to $18.5 million for the six months ended November 25, 2023, primarily as a result of a 1.5% increase in billable hours and a 0.7% (also 0.7% on a constant currency basis) increase in average bill rate year-over-year.

Current wording

Outsourced Services – Revenue in the Outsourced Services segment remained flat at $9.4 million compared to the prior year quarter. Both billable hours and average bill rates remained steady. For the nine months ended February 22, 2025, Outsourced Services segment revenue increased by $0.4 million or 1.5%, to $28.3 million compared to $27.9 million for the nine months ended February 24, 2024, primarily as a result of an 0.8% increase in billable hours while the average bill rate year-over-year remained flat.

Previous wording

All Other – Revenue in the All Other segment of $2.4 million in the second quarter of fiscal 2025 remained relatively flat compared to the prior year quarter. For the six months ended November 23, 2024, All Other segment revenue decreased by $0.6 million or 11.3%, to $4.4 million compared to $4.9 million for the six months ended November 25, 2023. The billable hours decreased by 24.7% partially offset by the increase in average bill rate by 20.1% (also 20.1% on a constant currency basis).

Current wording

All Other – Revenue in the All Other segment declined by $0.5 million or 21.7% to $1.8 million in the third quarter of fiscal 2025 compared to $2.3 million in the prior year quarter. The billable hours decreased by 31.9%, partially offset by an increase in average bill rate by 6.1%, partially due to lower fee discounts. For the nine months ended February 22, 2025, All Other segment revenue decreased by $1.1 million or 14.7%, to $6.2 million compared to $7.2 million for the nine months ended February 24, 2024. The billable hours decreased by 26.7% partially offset by an increase in average bill rate by 15.9%.

Previous wording

On-Demand Talent– The On-Demand Talent segment’s Adjusted EBITDA decreased by $3.1 million or 35.3%, to $5.6 million for the second quarter of fiscal 2025, compared to $8.7 million for the second quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $17.5 million for the second quarter of fiscal 2025, which was partially offset by the decrease in the related cost of services of $11.4 million. Additionally, SG&A costs decreased by $3.1 million for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to the decrease in employee compensation expense.

Current wording

On-Demand Talent– The On-Demand Talent segment’s Adjusted EBITDA decreased by $4.8 million or 65.0%, to $2.6 million for the third quarter of fiscal 2025, compared to $7.3 million for the third quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $17.1 million for the third quarter of fiscal 2025, which was partially offset by the decrease in the related cost of services of $10.3 million. Additionally, SG&A costs decreased by $2.0 million for the third quarter of fiscal 2025 as compared to the third quarter of fiscal 2024 primarily due to a decrease in employee compensation expense.

Previous wording

Consulting – The Consulting segment’s Adjusted EBITDA decreased by $1.2 million or 11.0%, to $9.7 million for the second quarter of fiscal 2025, compared to $10.9 million for the second quarter of fiscal 2024. Compared to the prior year quarter, revenue increased by $1.6 million, which was offset by the related cost of services increasing by $2.1 million. Additionally, SG&A costs increased by $0.6 million for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to the increase in general and administrative expenses.

Current wording

Consulting – The Consulting segment’s Adjusted EBITDA decreased by $2.9 million or 32.6%, to $5.9 million for the third quarter of fiscal 2025, compared to $8.8 million for the third quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased by $3.2 million, which was partially offset by the decrease in the related cost of services of $0.6 million. Additionally, SG&A costs increased by $0.2 million for the third quarter of fiscal 2025 as compared to the third quarter of fiscal 2024 primarily due to an increase in general and administrative expenses.

Previous wording

For the six months ended November 23, 2024, the Consulting segment’s Adjusted EBITDA decreased by $2.0 million or 10.2%, to $17.5 million, compared to $19.5 million for the six months ended November 25, 2023. Compared to the prior year period, revenue remained relatively flat but the related cost of services increased by $2.9 million compared to the prior year period. Partially offsetting the adverse impact from revenue and cost of services, SG&A costs decreased by $1.2 million for the six months ended November 23, 2024 as compared to the six months ended November 25, 2023 primarily due to the decrease in employee compensation expense.

Current wording

For the nine months ended February 22, 2025, the Consulting segment’s Adjusted EBITDA decreased by $4.8 million or 17.1%, to $23.4 million, compared to $28.2 million for the nine months ended February 24, 2024. Compared to the prior year period, revenue decreased by $3.5 million and the related cost of services increased by $2.3 million compared to the prior year period. Partially offsetting the adverse impact from revenue and cost of services, SG&A costs decreased by $1.0 million for the nine months ended February 22, 2025 as compared to the nine months ended February 24, 2024 primarily due to the decrease in employee compensation expense.

Previous wording

Europe & Asia Pacific– The Europe & Asia Pacific segment’s Adjusted EBITDA decreased by $0.2 million or 13.0%, to $1.5 million for the second quarter of fiscal 2025, compared to $1.7 million for the second quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $2.1 million, which was partially offset by the decrease in the related cost of services of $1.2 million. Additionally, SG&A costs decreased by $0.6 million for the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024 primarily due to decreases in employee compensation expense.

Current wording

Europe & Asia Pacific– The Europe & Asia Pacific segment’s Adjusted EBITDA decreased by $0.5 million or 37.3%, to $0.8 million for the third quarter of fiscal 2025, compared to $1.3 million for the third quarter of fiscal 2024. Compared to the prior year quarter, revenue decreased $1.1 million, which was partially offset by the decrease in the related cost of services of $0.4 million. Additionally, SG&A costs decreased by $0.2 million for the third quarter of fiscal 2025 as compared to the third quarter of fiscal 2024 primarily due to decreases in business expenses.