RCM Technologies, Inc. (NASDAQ:RCMT) Q1 2024 Earnings Call Transcript

RCM Technologies, Inc. (NASDAQ:RCMT) Q1 2024 Earnings Call Transcript May 12, 2024

RCM Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, welcome to the RCM Technologies’ First Quarter Earnings Update. I will now turn the program over to RCM Management.

Kevin Miller: Good morning, and thank you for joining us. This is Kevin Miller, Chief Financial Officer of RCM Technologies. I am joined today by Brad Vizi, RCM’s Executive Chairman. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates, assumptions, and information currently available to us. And these matters may materially change in the future. Many of these beliefs, estimates, and assumptions are subject to rapid changes. For more information on our forward-looking statements and the risks, uncertainties, and other factors to which they are subject, please see the periodic reports on forms 10-K, 10-Q, and 8-K that we follow with the SEC, as well as our press releases that we issue from time to time. I will now turn the call over to Brad Vizi, Executive Chairman, to provide an overview of RCM’s operating performance during the quarter.

Brad Vizi: Thanks, Kevin. Good morning, everyone. As discussed in our prior call, the first quarter concluded as expected, with a seasonally slow start in January and acceleration as we moved through the quarter. Our breath of focus is both widening and deepening throughout the organization, with all teams executing on current initiatives while seeding new initiatives to propel growth well into the future. Further galvanizing the strength of the platform, we have introduced the shared services team, whose mandate is to help streamline the strategic focus of our groups, strengthen collaboration, and enhance communication about the RCM platform. Throughout the month, we will launch a much-improved digital initiative highlighting the mission critical work of each of our groups and helping distinguish us as what I believe to be one of a kind platform in the marketplace.

Without further ado, I will get into updates on the progress of each of our teams starting with healthcare. The healthcare division started 2024 with a continued emphasis on its core, excluding business we consider to be non-strategic, primarily consisting of a slow-paying, long-term care facility client we made the decision to reduce. Healthcare demonstrated solid double-digit top-line growth year-over-year. As we finished lapping the bulk of this headwind in Q2, we anticipate a reacceleration of growth in the second half for healthcare. This progress is a testament to the hard work and dedication of the team. Our K-12 education business, one of our key focus areas, continues to strengthen. We are confident about the potential of five new school districts already onboarded and 12 more in the final stages of negotiation, each anticipating to generate revenue in excess of $300,000.

Also of note, there are 11 new districts toward the late stages of the sales cycle that show promising contribution in the 2024-2025 school year. Our expansion efforts to grow our client-based nationwide continues to yield substantial results. We are leveraging our leadership position in K-12 staffing to capture new opportunities and strengthen our advantage. As we continue to execute our strategy, we are confident in our ability to deliver sustained value and growth to our shareholders. Transitioning to life sciences and data solutions, first quarter results demonstrate a continued progress in executing against our strategy to pursue project, solution, and managed service solutions’ client engagements. Our renewal business doubled year-over-year.

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Q&A Session

We have seen increased demand for our services in life sciences, HCM, and Puerto Rico solutions, and our pipeline continues to grow quarter-over-quarter. Our customers have challenged us to expand our services in HCM with the introduction of direct, white glove, and post-implementation support. We have expanded our data management team and built a dedicated ERP solutions team. We have broadened our program practice team by introducing a robust series of organizational change management services that will enhance all of our solution practices. As we look toward the remainder of 2024, we continue to see strong momentum in the business. Energy services closed the first quarter of 2024 with strong results, delivering double-digit forecasted revenue and EBITDA increases.

Client development continues to be an area of investment for us, given the technical success of several marquee projects within the industry. To say it differently, widely followed technical success is conducive to growth, and we are highly focused on leveraging our momentum in the marketplace. During Q1, energy services invested in client development in the Northeast and Midwestern United States, Puerto Rico, and Europe, building partnerships for the net zero transition and modernization of the electrical grid. Also note, organizational changes have strengthened the ETC and transmission line business to capitalize on increasing market demand. We believe that the foundation is set for energy services to provide a material economic contribution to RCM in 2024 and well into the future.

Within our process and industrial group, RCM Thermal Kinetics continued execution efforts for multiple equipment contracts in the zero carbon chemical manufacturing sector. The Thermal Kinetics Office has also won new engineering business in Q1 related to ethanol plant expansion and optimization studies. The Thermal Kinetics team feels that this is a strategic area of focus as production plants try to reduce their carbon footprint and are incentivized by state and federal governments to do so. In addition, a large engineering order related to an SAF production plant was also received in Q1. The new Thermal Kinetics testing lab was at 100% utilization through Q1 2024. Client interest in the facility continues and we anticipate utilization of the lab will continue through 2024.

The team remains focused on the continuation of its emergence as a market leader in responsible and sustainable chemical process design. The Aerospace and Defense Group had mixed results in Q1 2024 due to a low in workload in our aftermarket segment during January and February. However, EBITDA for the division still grew year-over-year. The engineering piece of the business is thriving, executing with three new clients in Q1 2024. There are RFIs, RFQs, and MSAs in process, most including engineering and aftermarket services with two new OEMs in vertical lift and land vehicles, three new Tier 1 manufacturers in power supplies inverters, electronics and aerospace components, and one new air mobility client throughout the Aerospace and Defense Division by the end of Q2 2024.

Our strategy to continue to drive and expand our model-based expertise, digital conversion, and software and systems expertise throughout the organization and customer base has resulted in continuing inquiries and partnership opportunities throughout the quarter. Our new service offering, which revolves around solving quality and production issues within our client’s supply basis, continues to grow with interest and engagement throughout our client base. This expertise is also attracting new client interest. We will continue to expand our reach with these clients and prioritize these engagements in 2024. Our project and program management additions in our engineering and aftermarket sectors are instituting welcome changes with the entire team excited and engaged.

We have already seen quantifiable results from the program management office stemming from the team’s exceptional efforts. I will return the call to Kevin to discuss the Q1, 2024 financial results in more detail.

Kevin Miller: Thank you, Brad. Regarding our consolidated results, consolidated gross profit for the first quarter of 2024 grew by 7.1% as compared to 2023 from $19.0 million to $20.4 million. Adjusted EBITDA for the first quarter grew 11.1% from $6.1 million to $6.8 million. Adjusted diluted EPS for the first quarter of 2024 grew by 30.4% from $0.41 to $0.53. As for segment performance in the first quarter of 2024, engineering gross profit grew by 27.1%, life sciences data and solutions gross profit grew by 7.9%, healthcare gross profit was down 2.4%. However, if we remove the impact of COVID from the comparable first quarter in 2023, we estimate that 2024 revenue grew by about 7.3%. If we remove the impact of COVID and the deliberate reduction in services to a large, long-time and slow-paying long-term care facility, we estimate that 2024 grew by about 12.8%.

School revenue of $31.9 million for the first quarter of 2024 grew by 19.1% after removing COVID revenue from the first quarter of 2023. As for the remainder of fiscal 2024, we continue to anticipate that we will see at least low double-digit, consolidated, adjusted EBITDA growth as compared to fiscal 2023, with a similar quarterly cadence to EBITDA when compared to fiscal 2023. We also believe that there are significant upsides in the fourth quarter with such a robust school pipeline, starting in the 2024-2025 school year. This concludes our prepared remarks. At this time, we will open the call for questions.

Operator: [Operator Instructions] And first up, it looks like we have Bill Sutherland. Your line is now open.

Bill Sutherland: Thank you. Hello, gentlemen. Nice quarter, and very impressive in terms of some of the new business you’ve got lined up here. The healthcare side is, you’ve got five districts that are onboarded, so they will impact the 2024-2025 year, right, Kevin?

Kevin Miller: [indiscernible] so far.

Bill Sutherland: Yes, I didn’t — it might be my phone, didn’t quite hear it.

Brad Vizi: Yes, Bill, I’ll go ahead and take that one. I think Kevin might have been on mute. We’re having audio difficulties here. We have five that we’re highly confident on, already executed, and quite a few in the pipeline that are very much advanced. I think the figure is 11 or so that are pending execution, and roughly the same amount that we believe should get there. So I think in aggregate, something around the 30 mark that we think has quite a bit of potential.

Bill Sutherland: Brad, while you’ve got the mic, can you just put a little more color on the, I think you said expanding services, this is life science, expanding services in the HCM part of it?

Brad Vizi: Yes. So two of our strongest practices in that business or in that division are life sciences and HCM, as you’re aware, and we’ve had quite a bit of success in HCM the last couple of years and been embraced by some of our clients here. And naturally when that happens, when you are successful with them with one particular need, you’re at the front of the queue with respect to ancillary opportunities, right, and opportunities to build on the business that you’ve worked with them to build. So it’s very much along the lines of what you look for in terms of identifying strategic clients, putting our energy into them, doing well for them, and then ultimately that leading to incremental opportunities. So again, benefiting from our growth, in terms of our ability to deliver value to them as well as their growth, and that particular market is very robust.