Bill Sutherland: And in engineering, just one other one, you mentioned aerospace picking up, coming out of 1Q. Is this a sort of a slow ramp, do you think, because you did mention three new clients starting up, just trying to get a feel of the cadence for Aero this year?
Brad Vizi: Kevin, do you want to speak to cadence or do you want me to take this one?
Kevin Miller: Yes, you can try it
Brad Vizi: On the aerospace front, that group has done quite a bit of work in terms of optimizing their business mix and positioning portfolio for the long term, basically to deliver good returns and higher margins. Making good strides on the engineering front, really solid success, as I alluded to in the compared remarks. And after Marcus, there was a bit of a wall that is picking up, particularly with some larger POs that are crystallizing this quarter, as well as new clients that started small naturally. And again, as we continue to deliver for them and gain their trust, they reward us with more work. So when you look at the combination of those two, we have much higher expectations in the second half than what we saw in the first four months of the year.
Bill Sutherland: Just one more. Kevin, you take a victory lap here on the cash in the quarter, and you mentioned continued improvement. Is there any kind of dimension you want to put on that?
Kevin Miller: Well, quite frankly, we expect Q2 and Q3 to be better than Q1 in terms of cash flow from operations. How much better remains to be seen, but I’ll be very disappointed if we don’t have.– when you add up Q2 and Q3, and I don’t care if a lot of it comes in Q3 versus Q2 or whatever, but when you add up those two, they should be a lot more than two times Q1, and if not significantly higher, I’m going to be very disappointed with the cash flow.
Bill Sutherland: It’s not just — and its not always timing. you’re also just making progress in terms of some of the working capital impacts.
Kevin Miller: It’s everything. It’s everything. It’s going to be — obviously, it starts with having a good net income, especially after considering seasonality, managing the working capital right up and down the balance sheet. Obviously, the biggest one is receivables, and we expect our receivables to be down at the end of Q2 and from where they ended at Q1 and down even further at the end of Q3. Based on what I’m seeing in the receivables right now, we’re making some progress in terms of getting them to a level that is more acceptable than where they are today.
Bill Sutherland: Yes, remind us about — well, first off, what was the DSO in the quarter, and then remind us where you want to get?
Kevin Miller: Well, it’s 93, long-term, I’d like to be in the low 70s. That may be a little too optimistic over the next two quarters, but we need to first get it to 85, and then get it to 80, and then get it to 75, and we’re just going to keep working to get it down. Obviously, there are always factors that influence that. Sometimes we do take on high-margin clients that maybe have a little bit slower profile. Sometimes when you’re working with big companies,
Bill Sutherland: Like school district?
Kevin Miller: Well, school districts are interesting. They pay quickly, but sometimes there are just a lot of administrative hoops you need to jump through. That causes some significant fluctuations. We’ve seen quarters where our school DSOs are incredibly pristine, and then we’ve seen other quarters where they’re just a little bit higher. The great thing about the schools is they pay, and they pay quickly once they approve invoices, and once the POs get all tied up in a bow and get on somebody’s desk. But the schools historically pay pretty well. It’s just up to us to do a little bit better job of getting through some of the administrative sort of traps that are out there. But yes, we’re excited because I can see on our two largest clients that we’re going to be in really, really good shape on those receivables over the next two quarters.
Bill Sutherland: Sounds good. Thanks, guys.
Operator: Okay. Next up, we have Alex Rygiel. Your line is now open. Alex, your line is now open. Perhaps you have a phone mute.
Alex Rygiel: I did. I apologize for that. Brad and Kevin, nice quarter here. Quick question. As it relates to the robust school pipeline and the potential for the fourth quarter upside, when do you think you’re going to have good visibility on this?
Kevin Miller: Well, it will certainly be better the next time we talk in early August. We’ll have better visibility in terms of the contracts that we have in place. We’ll probably have a feel for some of them in terms of what kind of revenue they’re going to generate out of the chute. And then, obviously, we won’t really have a feel for how much revenue all of the schools are going to generate until we get to, like, sometime until September, October. Because it just, you know, sometimes schools kind of surprise you in terms of when you first ramp up with them, sometimes in a good way and sometimes in a bad way. But we’ve got so many new schools that we think we’re going to have for next year that Brad and I are sitting here going, well, at least a few of them are going to pop and come in as pretty good clients right from day one.
And then the others will work to get them to be significant clients later on in the year or ’25, ’26. But we’ve not had a pipeline like this that of new schools that I can remember, frankly, ever, in history of the company. So it’s exciting.
Alex Rygiel: And when you sign up and execute on these new contracts with the schools, can you address if there’s any sort of margin headwind, maybe in the first 90 days of that new contract, or if there’s a notable receivable headwind?
Brad Vizi: No, well, certainly, I certainly don’t feel like there’s any receivables headwind. Sometimes when we get into a new school client, every school can have, like, quirky administrative procedures in terms of getting POs approved and getting invoices approved and getting timesheets approved and IEPs approved. So sometimes when you find, when it takes a little while to get the cadence down of the administrative burdens that are at a particular school, so sometimes there’s slow paying in the beginning until we sort of really work through everything that they need. But we typically, the schools always pay. And really, there’s no one school where, like, they’re going to take a long time to pay. The only time they take a long time to pay is if there’s some administrative stuff you need to get through.
