Q1 2022 R C M Technologies Inc Earnings Call

Yeah.

Good morning, and thank you for joining US This is Kevin Miller, Chief Financial Officer of RCM technologies.

I'm joined today by Brad Vesey, 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 and assumptions and information currently available to us and these matters may materially change in the future. Many of these beliefs estimates.

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 filed 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 Vesey Executive Chairman to provide an overview of <unk> operating performance during the quarter.

Yeah.

Thanks, Kevin.

Good morning, everyone.

Rcm's first quarter results demonstrate a strong start to 2022 as we continue to build on the foundation, we've established and drive execution across each of our business units.

We also expect continued shrank from each of our divisions with every member of our team's steadfast in their commitment to delivering excellence to our clients each and every day.

Once again.

All of our units performed well during the quarter.

Our engineering team has seen robust activity across the board.

Our health care services team continues to expand its client footprint fortifying its presence as a premier service provider for school districts across the country.

Lastly.

Our life Sciences, and I T group is making demonstrable strides toward becoming a leading solutions and managed service provider to the life Sciences market.

Yeah.

I will speak to several of the operational highlights in a moment.

But first I want to thank the team for a job well done and their commitment to propelling our see them to the next level.

As proud as I am the team's historical performance, we must continue to remind ourselves that we are still in the early stages of unlocking the massive potential of our platform.

In fact, I believe we're just scratching the surface and remain confident that we have a long runway ahead.

The level of collaboration has been contagious amongst the groups.

And the shared institutional knowledge has been demonstrably accretive to today's results.

Each group brings a unique and valuable skill set the entire firm can leverage when delivering value to our clients.

We are attacking markets with an increasingly holistic approach.

And it is resonating with our clients at the level as the level of engagement has never been better.

This mindset shift from a siloed approach to want a seamless collaboration is a testament to our strong company culture spawned by leadership and embraced throughout the organization.

I am convinced the tangible benefits we are seeing today.

Galvanize the sustainable culture shift that would be one of the hallmarks of our see them for years to come.

Before Kevin dives deeper into the numbers I want to share a few highlights and discuss several of the exciting initiatives. We have underway at some of our top performing business units.

First quarter results represent another step change in performance.

Further highlighting our team's commitment to the RCM platform.

We continue to see strong contributions from each of our divisions.

How does the company.

RCM generated first quarter revenue of approximately $82 million.

A 26% increase sequentially and an 84% increase year over year.

Even more impressive we posted record profitability during the quarter.

In total EBITDA for Q1 came in at $9 $3 million, representing growth of 74% sequentially at well over 400% year over year.

I would like to call out a few of our star performers during the quarter and discuss at a high level. Some of the exciting developments that we expect will move the needle in the future.

First our healthcare team continues to execute against our long term plan through its unwavering commitment to serving the youth of our country and education end market.

By introducing new services, serving new schools, and increasing penetration of our long term partners.

The team continues to fortify its position in this vital end market.

Strike was broad based as reflected in the division's financial performance.

Our aerospace team is doing a tremendous job across the board.

Our new teammates fit hand in glove with the rest of the organization starting with their unwavering commitment to the client which was only augmented by the insatiable appetite for innovation.

To give you a sense as to the scale of this group's growth pipeline.

The team's overall head count has increased from 107 as of Q4 2020 to.

So 272 currently.

As mentioned on our fourth quarter call.

My level of excitement remains unabated regarding the inroads, we are making within multiple new ecosystems.

The pace of innovation and overall industry activity is impressive and I have conviction that RCM has a definitive role to play in helping our clients make history within some of these emerging markets.

Our team has been extremely adept at finding niche skill sets in a tight labor market to help our clients scale.

In return, we are increasingly being thought of not only as a vendor with a partner of choice.

Speaking of being a partner of choice.

Our energy services team is also worth highlighting.

Their unwavering commitment to the client goes beyond projects in the field.

As a reminder, this week we are presenting in partnership with one of our premier clients at the eye Tripoli TMT conference in New Orleans.

We hope you'll be able to chat.

Finally, our life Sciences team continues to gain traction with several blue chip clients as the group.

That's to a more attractive managed services model.

In particular our.

Our validation practice.

Robust demand for its services as the life sciences industry undergoes a substantial upgrade of its manufacturing capacity.

This strong demand backdrop has been precipitated by the pandemic.

But it's also being driven by the desire of many companies to simplify and secure their supply chains, which has led to a large onshoring effort.

Taken together their execution is paying off as the group grew revenue by more than 27% year over year and increased profitability by approximately 43% over the same timeframe.

It is also worth noting that the outlook is just as robust.

Business activity remains elevated across all service lines.

I want to thank bill and his team for their unwavering commitment to restoring our C. M life Sciences, and I T back to the Crown jewel status. It once held many years ago.

It serves as a beacon within our organization and we appreciate the group's tireless efforts towards making RCM a marquee franchise within this vital end market.

In closing I am proud of the team's focus and execution as we enter 2022.

We are committed to building on the successes of last year with robust and broad based performance.

Our strong leadership throughout the organization.

Each of our.

Yeah.

I'm sorry.

I think the difficulty please standby.

Ladies and gentlemen, I'm, sorry for the technical difficulty there.

At this time, we have our speakers back on the line and we're going to go ahead and open it up for questions. If you do have any questions. Please press star one again to ask a question. Please press star one please hold while we wait for questions.

Okay.

Alright, and we do have a question coming in from Bill Sutherland.

Good morning Bill.

I guess I'll just lead you through what you're maybe going to get into Kevin as far as some of the numbers.

Sure.

So Brad Brad mentioned.

In health care.

Growth was contributed to by new services New schools.

And also increased penetration so I'm interested in that and then also just the split.

Between education and.

The travel per diem the regular business.

Yes.

Yeah.

To start in.

Kevin you can certainly.

To the extent that I Miss anything.

So as you mentioned bill.

A lot of the growth has been driven by new services that have been introduced.

No.

New schools that we've been serving alright.

Their penetration of schools.

And we're working with for a long time.

A lot of that service offers offerings that we've introduced.

<unk> tend to be skewed.

Skew more towards the behavioral health at market Special education teachers et cetera.

And so what you're also seeing is Ah.

More rich mix.

Which is not only to driving growth in these end markets, but also increased margin more in line with the education segment.

Kevin do you have anything to add to that.

No I think that covers it.

Alright, and we do have another question. This one is coming from Michelle.

Sorry about that hi, Thank you gentlemen, great quarter here I know you don't provide a lot of guidance, but I was wondering if there's anything kind of onetime in nature in the first quarter or if these are a good quarterly run rates for each of the segments in terms of revenue and margins to kind of use going forward.

Yeah, I don't think there was anything onetime in the quarter.

Every single year each of our businesses is to us.

Growing in the double digits so.

We also aim for a double digit operating margins.

Inevitably what happens is as you scale that starts to show up on a consolidated basis. So what.

Look our marching orders are.

So I don't see them changing for the foreseeable future.

Just given our size relative to the large end markets. We play out so no I don't view this quarter or just an extraordinary in nature.

And obviously the.

Efforts of really thousands of employees.

So.

Alright, again, if anyone would like to ask a question. Please press star one we do have another question coming from Bill Sutherland.

Okay.

Theres, a way back and ask more than one question.

So Kevin Kim.

Again in the quarter.

Does the west such a big upside in health care and welcome to my model.

What was the driver of the health care and I'm sort of getting at that by asking about the split between education and Im sure well I mean so.

The growth is frankly broad based across all of our groups.

But you know.

Obviously.

We're heavily concentrated school business right. So.

That is.

Probably the biggest driver is the penetration and growth in the schools frankly.

But but we are growing really everything.

And we expect to continue to see growth.

Outside of the school business as well.

Yeah, I'm, just asking because it's becoming clear that the.

The rates are going to start to normalize, particularly in the travel business going forward.

The volume growth is probably going to moderate as well.

Sure. So so that's why I'm.

I'm trying to understand.

We really do very little travel I think you know.

And we may do more of that in the future certainly.

We certainly are interested in doing that.

But right now our greatest focus is on serving our school clients.

And serving non travel related.

Business to hospitals rehab centers.

Nursing homes.

What was our bread and butter business before before we got into the schools. Many years ago. So we're not really.

Extent theres a contraction.

In rates in the travel business.

That's really I don't expect that to impact us in any material way okay.

What we do very little travel.

So maybe a couple of million dollars a year right now that's about it yeah. Okay.

Okay.

That's that's kind of what I need to find out.

Then there's.

Excellent gross margin.

Realizations.

In I T. While revenues were a little light sequentially.

Any color on that.

Yes, well, we had an extraordinarily.

Extraordinary quarter in <unk> in Q4, we had a we had a big project that we delivered.

And sort of a short period of time.

So we saw a big jump in the queue for revenues.

It wasn't a big surprise to us to see Q1 revenues.

Are there more in line with Q3 of last year.

As far as the margins are concerned you know.

That's not by accident and obviously, we're where we're transitioning our model.

To more managed services more higher margin work.

Where we're seeing some of our growth.

As in life Sciences, which if you're in the right niche markets you should.

You should see the kind of margins that we're seeing.

At least that's the way we feel about it.

We've also.

We've also seen a lot of improvement in our human.

Human capital services.

Our HR services group.

Which we also typically see pretty good margins.

As long as we're doing a good job managing our utilization, which we have done for the last couple of quarters.

But how big is life sciences as a percent of your I T group.

It's probably roughly 70%.

Okay.

<unk>.

Okay.

And then.

Yes.

No.

Impressive job on the cash.

Any updated thinking on capital allocation plans.

Yeah.

Nothing to certainly nothing to announce but it's it's a it's a heavy heavy focus for Brad.

The board and myself in terms of how to allocate capital that's something we think a lot about.

No nothing really.

To talk about today, but.

All I can say and I'm sure Brad will probably want to speak to this because this is something he is incredibly focused on.

But you know what.

Where we're going to allocate the capital in a way that we think is most efficient and most beneficial to the shareholders.

Got it.

Okay. Thank.

Thank you gentlemen, congrats.

Thank you Bill.

Alright, our next question is coming from Frank Kelly.

Good morning, Good morning, gentlemen, how are you.

It looks like we had another great great quarter for all the units are I'd like to add my congratulations to all the group heads and to the leadership team up at the top.

Couple of questions. One is in the SG&A area, it looks like year over year.

It's gone up.

55%.

Over $5 million.

Can we shed some color on.

Where that was where those monies are.

Okay.

Sure I mean at a high level, Frank we're hiring people and paying them more as they deliver more gross profit.

We are as you know.

We this is a very labor intensive business, particularly on the recruiting and sales front.

And particularly as.

As far as our school business is concerned and all of the Credentialing and all of the things that need to go.

And behind the scenes.

To put our put somebody to work.

So we're just investing in our people we are investing in our systems.

You know, we're we're obviously as gross profit increases soda commissions and so to bonuses.

And everything else, but what what what Brad and I and the other leaders in this business you are trying to do is balance.

No investment for the future with good profitability and good cash flow in the present right and right now we're happy with where we are.

We will continue to keep an eye on SG&A and make sure we're efficiently deploying it.

Great.

Second question I had was a.

Do we do.

<unk> because it looks like it obviously with revenue going up sales going up.

We expect AUR to continue but at a were where our dsos today versus a year ago.

Much improved you know we had the best DSO quarter in Q1 that we've ever had in the company.

And.

And.

In Q4, it was the best quarter, we ever had until Q1 of this year. So we're on well under 70 days I don't have the exact number in front of me, but I think its right around 66 for Q1, and we were right around.

67% 68 for Q4.

So we're very pleased with where with where the Dsos are at this point.

Great Great and then so that kind of dovetails into my next point, which bill brought up as well on a.

On the shareholder appreciation program, if you will.

And we're all looking at looking forward to hearing some good news.

In that.

As we see these great numbers trickled through the financials.

Well youre not expecting a different answer than we gave bill are you.

I am not but just kind of.

We're also reiterating his his valid point I guess you brought it up on the last call as well.

And we'd.

We'd like to we'd.

We'd like to hear it look forward to hearing.

What what what kind of program that.

We have our intentions that we have.

Down the line.

Great well, we appreciate your positive feedback in and.

I think you know that we keep a very close eye on capital allocation and view it as an incredibly important functional.

Management here.

Great great quarter.

Thanks Frank.

Alright, our next question is coming from Min Cho.

Hi, there I just had a couple more questions.

Firstly did you repurchase any shares in the first quarter.

We did.

We did.

If you bear with me.

Look that up and I don't want to say it was around 400000 shares, but I'll give you a.

Exact number hold on.

I think that's right.

100000.

And have Lockheed Okay, and how much did you spend on that.

And by $2 seven 2.8 million, Kevin you can double check me on that.

Okay.

$2 $8 million 406000 shares.

The first quarter, our average purchase was $6 84.

Perfect.

Also I think bill was asking this question as well, but what percentage of your health care revenues is from the school districts. I think you would provide that information in the past, yes. It's in our Q in Q1, it was approximately 79% I'm.

I am sorry 70.

9% approximately 79%, okay, great perfect.

Also in terms of your engineering business are you starting to see any benefits from the infrastructure Bill in terms of increased bidding pipeline just anything anecdotally about the infrastructure billings impact.

I don't think we've seen the impact yet.

But we do expect.

That there will be some impact in the future I mean, this is kind of something as I'm sure you would.

Would understand that it's pretty lagging sort of impact right. We're seeing a lot of demand for T&D services, and we were saying that before the infrastructure Bill.

And I think that there's a lot of I mean.

I think the big utilities, all know that theyre going to be spending.

A lot of money on T&D.

And they are gearing up for that so I don't think that has really shown up and frankly, you know while we're very optimistic about the rest of this year I'm not sure. If we're going to see much impact in 2022 from specifically from the infrastructure Bill, but we do believe it's going to have a major impact.

To our business.

Over the long term.

Got it and then also just a.

A quick question about your carbon capture technology I know you've talked about it in the past can you provide just a little more detail about that is this a proven technology our customers actually using it or are you still in a testing phase just wondering did any info on that.

Yeah, no. So yes, it's very much commercial yeah.

So we don't break out process in industrial it's safe to assume that's willing.

Well into the eight figures of top line.

In.

Generally speaking your above average margin obviously it can be project specific.

And.

What happens is you start to partner with some of the larger players in the space.

Our preferred provider.

So there's quite a bit going on in terms of pilot programs that are actually sizable and we actually think that entire space at the very early stages of its development. So we anticipate.

Benefiting for about over the long term and it's already materially accretive to our results today.

Yeah.

Okay.

And then just final question I know you don't provide a backlog per se, but can you talk about I'm, assuming giving your.

Given kind of the the guidance for the year.

Just general guidance that backlog trends kind of improved sequentially across all the segments as well.

Backlog is very strong.

But just this might be a good opportunity for <unk>.

Later explain ultimately the mix as well.

Our engineering business.

Depending on what business Youre looking at backlog is slightly more relevant and some of our businesses. They are a bit more quick turn in nature, so backlog might not be the best indicator and others. It is a very good indicator.

What happens is as these businesses are growing in the projects that we work on are larger.

Backlog it becomes a little more relevant nature.

That's why it's it's we don't break it out and even internally, it's not necessarily the best indicator.

In isolation, but when you take it you know you triangulated amongst a number of other things. We look at you have a really good sense as to how it workflow.

Is going.

Right I understand alright, great. Thank you.

[laughter] excuse me gentlemen, I'm not showing any further questions at this time.

Yeah.

Thank you everyone for attending our Q1 2022 conference call, we look forward to providing further updates going forward.

Speak to you about.

Q2 in August .

Yeah.

Ladies and gentlemen, thank you for joining US you may now disconnect.

Okay.