Q2 2020 R C M Technologies Inc Earnings Call

We issue from time to time. Thank you.

Thanks, Kevin. Like many companies was materially impacted by covid-19. We lost significant Revenue in the second quarter. Primarily the result of abrupt school closings month. However, we believe that we performed well against our tow good plan that we outlined beliefs last spoke in a broadly speaking. We outlined the plan where we would surgically cut non-critical wage and expenses Focus heavily on your reservation and gross. Margin while at the same time working to maximize cash flow from operations. We are pleased with the results on all three fronts off.

Before discussing our segments. I want to highlight a few areas of our cash flow statement and balance sheet.

We generated sixteen point nine million dollars in cash flow from operations in the second quarter robust cash flow from operations a lot us to reduce our net debt by 51% off 32.1 million dollars to Fifteen point seven million dollars. We are pleased about the flexibility to step production of Ford's RCM going forward our second quarter cash flow not reflect the seven point four million dollar arbitration award from the first quarter. We expect the collect one hundred percent of the award disc order and use those proceeds to reduce that took further r c m also purchased one point eight million shares in the second quarter and attractive purchase price by executing a note payable for two point two million dollars.

We are optimistic that we will be able to pay that note off before the coupon starts on September 1st. Finally. We negotiate a flexible Financial covenants on our line of credit during a challenging economic environment.

Providence had most significant impact on our Healthcare Staffing segment as compared to initial expectations. We were somewhat surprised on two fronts one. We thought our non-school Revenue should be higher due to the pandemic and two we thought our school Revenue would be lower.

are non School

Revenue in Q2 2020 was about five billion dollars versus four point seven million dollars in queue $1.20 and 5.6 million dollars in Q2 2019.

We initially thought see a meaningful increase in non-school Revenue due to increased demand for nurses and doctors to treat covid-19. It's a natural hedge that exists in our business office. Well that demand did materialize as expected several additional headwinds impacted the industry most importantly we saw the need for services not related to covid-19 it off though. We did benefit from several covid-19. Per. Tuna T's such as Regional testing sites and Regional Alternative Care sites in multiple States games and covid-19 services were off set off.

We also anticipated that seems rhi M. Technicians mostly work from home. We would see a nice increase in h i m however many of the h i m n clients have delayed projects due to Providence disruption in fiscal 2019. Our school clients generate about $66 billion dollars or 74% of our Healthcare Staffing rep. However, as most of you are aware school closures were widespread by mid March this year, the negative impact on cue 12020 was significant way we expected that surely worse results in Q2 2020 with very modest revenue generated from schools. We were pleasantly surprised to generate 5.7 million dollars in revenue from our school clients wage to $20 this compares to 17.8 million dollars in pandemic Q2, 2019 Revenue.

There remain significant uncertainty around schools for the fall many schools have not formally announced their plans those that have announced plans have made it clear that those plans are subject to Rapid change until our country achieves some degree of normalcy around schools. It will be challenging to predict our school Revenue one silver lining is it pertains to the business of the Rapture of our effort? We believe that Telehealth platforms will become a more significant part of school Services both in the short and long-term furthermore. We believe that we are ideally situated to leverage our leadership position in the school business to accumulate market share by providing a leading Telehealth offer to this end Market.

We are only in the early endings for Telehealth Services the schools, but we are very excited about the opportunity. We believe these services will become an integral part of the package fine postcode that education system.

As compared to health care covid-19 less impact on engineering and it segments.

So neither group has seen a material reduction in current assignments as a result of code that both segments have predictably seen as long as new business inquiries at proposals.

Isabel

Lee going forward is challenging but improving

our engineering segment expect to see sequential growth in the second half of 2020 as compared to the first half based on our current backlog and pipeline. We have recently won several meaningful projects in both transmission and distribution and Industrial processing groups.

At this time, we are optimistic about these two groups for the second half of 2020 and into twenty Twenty-One the area we saw the most significant weakness is on the commercial side of our Aerospace wage.

Historically our commercial business has represented roughly 30% of our Aerospace Revenue.

Ask us got some previous calls. We have been working diligently to reconfigure the company to deliver Superior gross margins and go for basis are gross margins Today George Strait sizable progress toward this objective as a result of several strategic initiatives specifically to illustrate the depth of the progress when comparing Q2 2012 engineering gross. Margin versus Q2 2018, gross. Margin, we're able to achieve four hundred basis points of improvement on a year-to-date basis the improvement over the same thing was 270 basis points these improvements worry function of several initiatives that we laid out in our strategic plan two years ago which includes structural changes and the way we manage utilization a superior project management an increased focus on Project work and increased leverage of our Serbian partners.

Finally, we have made an effort throughout each division to move closer to the client and evolved into more of a value-added partner. The only have we made significant progress toward the subject but many instances RCM has evolved into a critical extension of the clients operation. We believe the progress made on this front was evident in the relative continuity of our business office.

All righty group performed relatively. Well in the second quarter, the sequential decline in Revenue was primarily due to HCM related projects that were delayed canceled or not replaced wage.

The rest of our business increased sequentially at this time. We do not expect any significant decline in revenue from mighty but we recognize the inherent risk and the current economic and political environment like engineering. I would like to take a moment in a highlight the progress we made improving gross margins on a year-to-date basis when comparing q2020 versus Q2 2018. We demonstrated 175 basis points of improvement when excluding HCM which outside of healthcare suffered the greatest impact of result of the pandemic RIT division delivered more substantial Improvement this Improvement in gross margin affords us valuable gross profit dollars to further invest in sales infrastructure wage leading to a sustainable growth trajectory.

Do not have a great way to filter expectations for the rest of 2020 especially for our school clients. But we do want to leave you with a few thoughts. We will continue to execute on our coded plan that way if we implemented early in the second quarter more specifically we will continue to optimize the efficiency of our sg&a cost structure while we accomplish much of our desired cost reductions. Just a second quarter if necessary, we can take further action on costs will remain focused on maximizing utilization and gross margin.

We expect to see steady cash flow the third quarter if we experience a healthy op ticket Revenue in the fourth quarter. We will see accounts receivable that rise from a lower Q3 levels. Although is it policy we try to avoid providing guidance. We believe that we will see positive even tougher their major of twenty-twenty. In fact, we continue to face significant challenges as a result the pandemic. However, we think we are positioned to handle these challenges and exit the pandemic stronger than we entered this concluding remarks at this time. We will open the call for questions.

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Oops, sorry about that. I was on mute. So our first question will come from Bill Southerland fill your line is no open very much. Hey Brad. So wanted to ask you just a couple of things on the Healthcare Group and mostly because you do have you know, a fair amount of Europe from three school districts. What's the latest update on their plans and how that could impact your third and fourth quarters, look sure well New York City has wage, you know filtered out some ideas, but I feel like they haven't really formalized anything. They're allowed to open for New York State birth. They've surveyed a lot of parents and they believe approximately 74% of students.

I'm sorry expected to you know participate in whatever in person school is offered, you know by New York right now, we believe you know, basically what's out there is a way that kids are going to go to school every other week 2 Days 1 week 3 days the other week there are other options on the table for the schools to choose from how long you know, whether that's going to happen Thursday one, you know, normally they would they would open September 8th. There has not been anything out there that I've seen that says, you know that they're definitely going to open September 8th or not. You know, there's not anything out there that they may we haven't heard anything in terms of them going, you know fully online for some period of time, you know, our best intelligence right now is if they're going to open around September 8th for the hybrid model that will you know impact us compared to previous levels exactly how we just don't know. We we think that our nursing home.

and therapy

Revenues, your Revenue won't be impacted a lot. That's our belief but that are paraprofessional which is the biggest component of of New York. You know, we believe that's going to be affected at what level we just don't know and obviously it's all subject to change because you know, there's almost a month to go and and you know schools are changing their jobs because you know, Hawaii was as as of Friday was scheduled to open on August 17th. They normally open the first week of August, but Hawaii now, it's Thursday Friday that for the island of Oahu, which is about which represents about 70% of our Hawaii revenue is that the first four weeks are going to be online and and after that they're they're hoping to go in person or two hybrid, but you know that that for weeks could obviously be longer. We we just don't know they've also indicated. Yep.

They're going to give some imperfect in person preference to at-risk kids. So they've indicated that some at-risk kids maybe in school even during the four weeks where they're going to be primarily online a lot of our kids, you know are considered at risk. So at this point, we just we just don't know, you know how much we're going to be impacted by the first four weeks being online and and and and after that we just don't know as far as Chicago has is concerned took the latest that we've heard is that they're going to be online for the first quarter which brings us into early November that they're going to be a hundred percent online almost all of our revenues Chicago is nursing and and and the school has indicated that they're going to use 100% of our nurses from day one for all different types of initiatives job.

From being Telehealth initiatives and some being where they do have school schools open physically for limited purposes where they they want extra nurses. So at this time believe our Chicago revenue is not going to be materially impacted but obviously everything's subject to change right? That's a great run down the nursing home. You can punch in New York City. Is that going to be shifted to Telehealth like Chicago or we believe that we believe that our nursing will be a combination of Telehealth and them using our nurses in in centers where they have kids even if they're not in school or were they just need them at certain facilities. So we don't believe our nursing is going to take a hit but you know the biggest portion of our New York City revenues coming from paraprofessionals, and there's just a lot of uncertainty around, you know, we we do believe there's going to be some sort of sort of Telehealth off.

For the paraprofessionals and we do believe that we're going to be utilizing them.

On the three and two days but a lot needs to get ironed out between all the time school starts, right? Just one more for me and I'll pass you the

I especially with Brad said about using Telehealth as a as a as a means of gaining share. So can you give us any color on kind of what you're intending to do?

Yeah, I'll take that one. So we're still in early days of that initiative, you know when this all happened it was clear that we were going to have to service our kids one way or another month and we had already had a valve offering. You know, this was it just made the decision really easy to invest behind it and not now we're looking at all sorts of options, you know in terms of taking it to Market but really, you know, the underlying premise is is to leverage or leading position as you know provides in therapists and nurses to schools, you know to ultimately gain share against, you know, many of our competitors with which ultimately tend to be Regional wage and and don't have quite the presence and and the wherewithal panoply of offerings Etc. So but that is certainly front and center for us and you know an opportunity we're focused on

Okay. Thanks a lot guys. Thanks Bill.

He's in gentleman. If you have a question, please press star one on your telephone keypad again for questions that start one on your telephone keypad.

Just a few minutes for people to join.

All right at this time there are no further questions. Thank you.

Okay. Thank you for sending RCM second-quarter conference call. We look forward to our next update in November.

Ladies and gentlemen of this time you may now disconnect.