Q3 2023 RCM Technologies Inc Earnings Call
Good morning, and thank you for joining US. This is Kevin Miller, Chief Financial Officer of RCM technologies, I'm joined today by Brad Veazey, our Sam as executive Chairman.
Our presentation in this call will contain forward looking statements 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 and 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'll now turn the call over to Brian Easy Executive Chairman to provide an overview of our CMS operating performance during the quarter.
Thanks, Kevin and good morning, everyone consistent with our prior update the business cadence continues to accelerate as we move through the year.
As such the fourth quarter will be our strongest and we expect to exhibit EBITDA growth year over year.
Also of note the outlook for 2024 and beyond is bright.
Our ability to parlay, our high value capabilities into long term partnerships, where we continued to deliver increased value into strategic accounts has taken hold.
We believe our collection of high value capabilities is unique.
The marketplace.
Serving as a key differentiator for which to land and expand.
Internally, we continue to build on our unique structure that fosters innovation and increased debt.
Penetration with each of our end markets, while increasingly strengthening points of collaboration between groups.
Our ability to continue to execute this strategy will increasing with increasing success will further fuel growth.
Future growth in our.
Our secular end markets for years to come.
Since we last spoke progress has been made across each of our divisions that I am excited to discuss in more detail starting with our health care Division.
The school year is off to a strong start for our health care team.
Notably we continue to add new school accounts, while growing our presence within our existing client base.
We attribute ongoing success to the goodwill we continue to build upon in this end market underpinned by our commitment to supplying highly qualified healthcare professionals to education institutions and other healthcare facilities nationwide.
Behavioral health continues to drive our business at an increasing rate.
And we believe we are in the early innings.
This much needed upgrades coordination social infrastructure.
Also with increased demand for behavioral health services comes the opportunity to further service our clients with other critical health care needs.
Our status as a partner not just another vendor, which is core to the RCM business model.
RCM healthcare tailored staffing solutions, coupled with a rigorous selection process.
Bolstered our reputation in education domain solidifying our status as the leader in this segment of the market and the gold standard for treating our nation's here.
As we move forward, we remain committed to sustainable growth innovation and the highest standard of service.
We anticipate further expansion into new markets and the development of cutting edge staffing solutions that meet the evolving needs of the health care industry.
Our dedication to improving the quality of health care services positions us to continue exceeding the expectations of our stakeholders driving value for our shareholders and positively impacting health care and education in the years ahead.
The ability to build good businesses, while serving a critical need in society and strengthening our communities resides at the core of our company's values.
Our life Sciences, and information Technology group continues to emerge as a shining star in the portfolio.
Though the macroeconomic landscape and information technology was challenging in 2023, including budget reductions across several sectors from high Tech financial services, our decision to continue investing in market segments, demonstrating secular growth has paid off.
The group's overall EBITDA contribution is up nearly 50% year over 55% year over year.
As we continue to double down on the winning formula.
Just this last quarter, we have expanded our life sciences practice and regulatory compliance European design and implementation.
Okay.
We are building out our organizational change management practice, which will further allow us to support our clients across their entire business landscape, while providing improved value through our current delivery models.
We continue to see positive trends entering the last leg of 2023 and have a positive outlook for 2024.
And engineering energy services strong execution demonstrate increasing leverage in the model highlighted by continued delivery of milestones on time for several world class projects, resulting in client satisfaction and solid gross margins.
Technical highlights include successfully completing site acceptance test as part of an E House high voltage application utilizing the IEC 61850 protocol.
In addition, we were approached to pursue an offshore high voltage Gis substation with a large international operating.
OEM as part of a potential long term partnership.
Also several vital deliverables were executed on time for our critical infrastructure project with a major utility client in New York.
This project represents a significant milestone in the clean energy transition and the northeast United States.
In Europe, our newly established office in Germany received recognition as a strong technical partner to support turnkey projects that will transfer the power supply to a carbon free electric Greg.
We are in the late stages of negotiation for our second major project award demonstrating increasing client confidence.
To serve the increased demand for EPC projects in 2024 and beyond energy services will further expand its EPC capabilities in Europe and North America.
We believe the recent addition of a high profile industry veteran to the RCM energy services leadership team well accelerate the award and execution of EPC projects in the United States and further enable us to prudently evaluate new regional areas such as South America.
RCM thermal kinetics continues to execute detailed engineering contracts for distillation evaporation of dehydration technologies employed in a carbon capture and sustainable aviation fuel markets.
On the equipment side. The office is currently executing three concurrent projects for zero carbon chemical manufacturing customer primarily using evaporation crystallization technologies.
The main driver for successfully awarding the orders to RCM thermal kinetics as the advanced energy integration techniques utilized in the design.
The RCM thermal kinetics engineering expertise related to energy integration of extensive chemical processes as an obvious tie in to these environmentally responsible projects.
It is why customers are standardizing on RCM thermal kinetics as their process design and equipment supplier.
We recently opened RCM thermal kinetics testing facility. It is beginning to gain traction.
The coming weeks to purchase orders are expected from clients requesting process feasibility and product profile testing.
The office has greatly strengthen ties to local universities to support staffing.
Testing lab through chemical engineering internships.
The customer support offered through process testing has a track record of receiving additional project orders.
It provides the benefit of process risk reduction for both the client and RCM thermal kinetics.
We expect log utilization to ramp up in 'twenty 'twenty, four for new customers and testing related to existing customer projects.
In addition to our lab. The engineers are now working on the design of a 30 gallon crystallization pilot plant.
RCM thermal kinetics receives a large number of crystallization of inquiries more than any other technology crystallization projects benefit from the ability to conduct robust piloting trials to produce product samples for our customers.
The current schedule would have this pilot testing service ready for client use it may of 'twenty 'twenty four.
RCM thermal kinetics recently presented at the advanced I O leadership conference in San Francisco.
The team has been a member of a B L. C for many years and benefits from building relationships with emerging companies interested in developing new processes.
Require our technologies.
Many of our customers today, where cultivated from ABL C meetings over the past 10 years.
The sales team has also attended the aluminum USA show.
RCM thermal kinetics has successfully supplied environmental equipment to aluminum production plants in the United States.
The team remains focused on continuing its emergence as a responsible and sustainable chemical process design market leader.
As for our aerospace team the growth and recovery, we expect midyear has begun to materialize in the third quarter with nine new clients, resulting in our weekly run rate and head count increasing nearing our historical numbers.
We still believe we have the potential to close three more new clients before the end of the year totaling 12 for 2023.
We also continue to increase the number of hires quarter over quarter with a total of 40 in the third quarter compared to 30 in the second quarter of 2023.
This continued expansion includes new clients in defense, including sea vessels.
Land vehicle programs and new vertical lift customers.
Expanding existing and new clients with our core expertise and new arenas provides us much desired depth and breadth of the organization and firmly positions us for 2024.
As the management team within some of our existing clients continues to change we have utilized our long term relationships reputation and expertise to stay relevant.
We believe we will see traction on one of our most significant awards for design center well into 2026.
We continue to market, our digital conversion expertise and methodology within aftermarket and our model based design prowess, which now expands across multiple clients throughout the United States.
We have multiple contracts with large Oems finalized and executed in 2023.
We also await a large all encompassing RFP from one of the largest defense contractors, providing a vehicle to support this client across all engineering and aftermarket disciplines.
We will continue to expand our reach with these clients and prioritize these types of engagements in 2024.
We continue to market the S factor, which broadens our reach beyond S. 1000 D publications into F 2000, and material management S 3000 out logistics support analysis S 4000, Pete maintenance and S 5000 F. In service date of feedback.
We are happy to report that we have our first launch client.
Which we will support in these expanded areas beyond technical publications.
We have reorganized the aftermarket arena to provide opportunities in other areas for our team members and we have increased our business development team for the first time in two years.
We are excited about the opportunities that this team has already uncovered.
Before turning the call to Kevin I would like to reiterate our financial expectations provided during the third quarter.
We continue to anticipate EBITDA growth during the fourth quarter, a resumption toward our long term objective, which is also in line with our expectation for 2024.
I also want to reiterate that as a general policy, we do not give guidance. However, we felt a more granular expectation as we closed the year would be appropriate given the advanced macroeconomic noise in the marketplace.
I will return the call to Kevin to discuss the Q3 2023 financial results in more detail.
Thank you Brad.
Regarding our consolidated results gross profit for the third quarter was essentially flat year over year with $17 3 million in Q3, 23 versus $17 4 million in Q3 'twenty to 'twenty two health care of gross profit in Q3, 23, or seven 5 million versus 9.0 million in Q3.
'twenty two.
There are there were primarily two reasons for the quarterly decline in health care gross profit.
First we believe that Q3 23 was our first quarter, where we derived zero COVID-19 related revenue.
Given this perspective, if we remove the estimated impact of Covid, we saw our school revenue grow by approximately 25% in September 2023, compared to September 2022, we experienced similar results in October 2023, Covid also impacts our non school.
Revenue comp.
Second we deliberately cold the services provided to a multilocation continuing care client in the five boroughs of New York City and long Island at the beginning of Covid, we acted as an emergency Vms and this client has the gross margins from the non direct revenue shrunk post Covid, we decided that the <unk>.
Contributing margin on that revenue was insufficient for our return model on a year over year basis, our quarterly revenue decreased by $2 1 million from let's call. It if we compare Q3 'twenty three to keep Q2 'twenty three is client.
Kris by $1 million sequentially.
The decrease in this low margin business helped us grow sequential gross margin to 30% in Q3 23 versus 27, 6% in Q2 'twenty three.
We grew engineering gross profit in Q3 23 by five 2% over Q3 2022.
The growth in gross profit was primarily driven by increased project activity in our energy services group and getting our engineering gross margin closer to target levels. Our gross margin in Q3, 23 was 25.0% a significant sequential improvement from Q2 23 gross margin of 22.
9%.
We continued to see outstanding results from our life Sciences, and 19 room with 38, 4% quarterly growth in gross profit year over year, we're seeing fantastic results as we drive more revenue through our high value high margin managed service offerings.
We hope there is another year, we can get to in Q4 of 23.
We look to our fourth quarter of 2023, and our fiscal 'twenty 'twenty four we expect all three segments to show good results with growth in adjusted and consolidated adjusted EBITDA We.
We estimate adjusted EBITDA in Q4, 'twenty three between $7 6 million and $8 2 million also in Q4 'twenty three we estimate consolidated revenue between 70.0 million and 74.0.
With a similar gross margin profile for Q3 23.
More granularly, we estimate life Sciences, and IP revenue between 11.0 million and $11 5 million, we estimate engineering revenue between $21 5 million and 23.0 Mountain, we estimate health care revenue between $37 5 million.
$39 5 million.
As we have discussed some variability and seasonality in our health care segment, we thought it would be helpful to discuss our weighted average smoothies in 2020 right.
Q1, 'twenty three was approximately 55 days Q2 23 was approximately 45 days Q3 23 was approximately 27 days Q4 'twenty three is estimated at about 51 days. So that's about a 7% decline in school.
Days, when comparing Q4 of 23 and in Q1 'twenty right.
Well, we haven't penciled our first budgets yet we expect a similar cadence of school days in 2024, except one or two days may shift from Q1 to Q2.
Well give 2020 estimates on our next call.
As we have our budgets ready for the year.
As for fiscal 2024, adjusted EBITA, we will we will be highly disappointed if we don't see at least low double digit growth our internal goals will undoubtedly reflect a much higher percentage. We are optimistic about growing all three segments in fiscal 'twenty four and beyond this concludes our prepared remarks.
At this time, we will open the call for questions.
If you would like to ask a question. Please press star one on your telephone keypad again to ask a question.
One on your telephone keypad.
Our first question is going to come from Alex <unk> with B Riley Your line is open.
Thank you gentlemen, very nice quarter and I appreciate the added guidance they're super helpful.
Couple of quick questions for you here first as it relates to healthcare what was your revenue from schools in the third quarter.
The schools was $17.4 million.
Thank you and then.
Your balance sheets incredibly strong and you talked a bit about expanding into new staffing markets.
So maybe Brad you could go a little bit deeper on that.
Yeah.
As alluded to in my prepared remarks, <unk> been pretty consistent with our dialogue last couple of years.
Had these businesses at a point where.
We have a lot of confidence.
Number of places in the portfolio. So we're in a position to be opportunistic with respect to deployment of capital and expansion into new Adjacencies.
We're not looking to.
Go greenfield into any new areas per se simply because there's plenty of opportunity.
To build on the core of what we do.
So naturally the first.
So our inclination is to do it organically by bolting on talent.
And to the extent that there's opportunity in organically with respect to M&A, we're going to react opportunistically and we would anticipate it being more of a bolt on to any type of well.
Major transformational platform type acquisition.
I hope that answers your question sufficiently.
Definitely does.
And then as it relates to the engineering segment can you talk a bit about the backlog there and the outlook for 2024.
Yeah, we feel pretty good about what's going on engineering.
Yeah.
Have increasing momentum.
With respect to the metric we track.
It's almost like a hybrid pipeline and backlog metric given that we feel is appropriate given the mix of our business.
It continues to grow so well.
We're anticipating good things, but.
Nearing inevitably given the nature of the project work now it could certainly deviate, but we don't do not expect anything substantial it's a question in our minds as to whether or not it's going to be.
A pretty good year too you know.
A very nice increase year over year.
And then lastly, as we think about the first quarter of <unk>.
<unk> 2023.
You mentioned that there were 55 school days.
And then you mentioned that in the third quarter. There were 27 and you had no.
Sort of Covid related revenue I guess my question here is as we think about the fourth quarter being 51 days and that's down 7% from the first quarter in the first quarter was there any COVID-19 related kind of legacy revenue in that first quarter, yes.
Yes, certainly.
Yeah.
I think you know we gave pretty clear you know pretty good guidance for Q4 right. So we.
We do not expect any COVID-19 related revenue in <unk>.
In Q4, and so far what we've seen at least in October is if we look at our schools.
Which is our core business and health care, obviously, we do a lot of work outside of schools, but at the end of the day, you know where where health care school business, that's our core business in health care right.
That grew 25% in September and it grew 25%.
In October.
And we think we can we really think we can build from there.
Great. Thank you very much.
Our next question is going to come from Ben Andrew from Andrews Capital Management. Your line is open.
Hey, good morning, guys.
A couple a couple of balance sheet type questions. If I may.
Understanding the.
Transit account I always thought it was sub contractor related is that have a specific.
Industry or segment, where is that your engineering segment are primarily what is that tied to.
Yeah.
You got it right, it's tied to engineering and mostly to EPC contracts.
So we have several large EPC contracts, where we do the E and the P. But we don't do the city.
You know, we don't take inventory of new equipment and the equipment, we purchased the equipment when it goes straight from the OEM to the client. So we never take you know inventory of that equipment and so a lot of that is you know is advanced payments for equipment.
And construction.
Okay.
So.
What this ballpark is the revenue stream going to those sub contractors.
Well.
In terms of the it's pretty significant right. So we have but it's all pass through.
So that doesn't show up in your income statement, but then their liabilities are their equipment will show up on your balance sheet.
No not the equipment the equipment never hits, our balance sheet then.
Essentially you know because we never take inventory out of it.
It's never our equipment at all stages, it's owned by our client, so where we're basically moving equipment and paying for the equipment, but we don't own. It so new equipment itself never hits, our balance sheet. So we get a payment in from the client.
And then you know we.
You know, we get like milestone payments essentially and we certainly manage those contracts. So that were paying upfront. So we're not putting out huge sums of money for equipment.
In construction so the money comes in.
You know we ordered equipment, we do the work and then eventually we pay for it.
And then you know more money comes in because these are more typically multiyear contracts. They go from anywhere from two to five years.
Okay. So so so our liability then would already be.
Our revenue earned by that subcontractor.
Not necessarily you know some of it may be earned but some of it may not be.
Okay. Okay. So you can book out further than 12 months.
Yeah, obviously, we're not booking any revenue in two until we actually earn it right based on the progress of the contract and based on the amount of engineering. That's been done right. So we do make a small percentage on the equipment and the construction as well and that also hits our income statement as revenue.
Okay.
Regarding our share issuance it looks like there was a fairly large share issuance in the quarter.
You know, maybe 10% of the market cap and it was it was clearly larger than any vesting schedule of Oh, you know what was already out there in your Qs what went on in the corner.
I don't know the exact share numbers in front of me, Ben but I believe that we had about 100000 shares issued to probably 20 employees under long term.
<unk> based restricted share awards.
One may be up.
Maybe you're right maybe I read it maybe I read it wrong, then because I thought it was 800000 shares no definitely not.
Cause you you finished last quarter or a little under 8 million shares in.
I thought I saw eight 8 million shares out right now.
7.8, Ben.
Oh, Okay I'm sorry.
Yeah Yeah.
Okay.
I have no problem I have the Q.
In front of me as of yesterday, we had $7 million 830 to $3 93 outstanding Okay.
Thank you guys for all your hard work.
I appreciate it thank you Ben.
Thanks Scott.
Our next question is going to come from Bill Sutherland.
A bunch Mike Your line is open.
Hello, guys.
Hey, following up on Bens question on the shares.
Is that still at the top of the capital deployment list for you guys going forward.
Yep.
Oh I mean.
We.
Always pretty much anticipating having some form of a buyback and naturally as.
We are taking shares and volume decreases.
And buyback is inevitably going to wane you know however, as you see we continue to be active.
We continue to be quite optimistic about our ability to deliver value.
At the company and so is it safe to assume we're very much committed to deploying capital.
Yeah through that medium.
Okay.
It's certainly been very effective.
<unk>.
Hey.
Zooming out a little bit on engineering and thinking about aerospace.
Getting back on it on its feet and the just the opportunities, particularly as you broaden it out.
But the other areas as well.
Should we think about the kind of intermediate growth for that group overall engineering.
Yeah, we're quite optimistic about the future of the engineering you almost look at all three segments or all three units.
And with respect to energy services, we continue to gain traction.
You know we have a number of very large long term partners as.
As we continue to build confidence project after project in some instances, it's a matter of you know how much we can take on so really going back to the core of that strategy leading with.
No technical capabilities that we think are very much differentiated in the marketplace.
With respect to kind of our track record the talent that we've assembled and from there naturally as you become a preferred partner the attachment of incremental work as it can be very substantial. So you know what you're really seeing there you know in the case of our.
Our energy services group is really.
Years of comp we're at.
A bit of a tipping point with respect to.
Compounding of yours, a goodwill and kind of a L. Earning that trust. So we actually have very high expectations going forward for that business.
Now with respect to aerospace.
A very strong growth orientation to it.
<unk> had a bit of a setback a very late last year.
Two weeks or so of the of the year apps.
Very happy with how the team dealt with it in rebounded adding incremental clients.
All of which are very significant and presents.
Meaning full opportunity to expand within those accounts so.
Again in terms of the upside in that business.
Quite optimistic.
And in 2024 and beyond and then finally with respect to process again.
Again, a very very strong technical capabilities and team.
We've currently invested in that business, making sure they have all the tools that they need to.
To continue to build on their reputation and ultimately the.
The financial performance of that business.
Inevitably there will always be an element of lumpiness there yeah that will be difficult to forecast. However, it is a very.
And Pat.
P intensive part of our portfolio.
And we get paid for that intellectual property.
And so you know it's economically very attractive model.
So with respect to saying you know this quarter.
Is going to be an excellent quarter versus you know call. It Q3 or Q4 that one is probably the most challenging.
However.
The returns are very robust.
<unk> is as strong as it's been.
Patient is very much intact ends and we believe we continue to you know.
Build on that and so we are optimistic for its performance as well but.
But very specifically, we think that that group is draft Hum.
Having finished up a couple of large projects and activity is starting to go in the right direction.
So is that is that the thinking.
As you look at your fourth quarter.
<unk> likely range for revenue and.
It looks like you are.
Quarter on quarter flat.
You'd be off a little bit.
So is that just in the completion phase.
Your new new work starts to ramp in the first quarter next year.
Yeah, No question Theres, a little bit of that but Kevin do you want to go into very specific way.
The breakdown within engineering, and how we're thinking about that sequential cadence.
Sure I mean.
It is difficult to project as you.
As Brad said, but we believe what we believe will see an engineering next year.
Is it slow sequential uptick you know as we move throughout the year right now we would expect Q1 revenue to be higher than Q4.
Q2 to be higher than Q1, and so forth.
No.
You know I'm not sitting here projecting any big.
Giant jumps in any particular quarter, but what I would like to see is you know single digit sequential growth each quarter.
Right.
With obviously, there being some upside depending on what happens with.
All of the different irons with fire as.
As you know you you've been covering us a long time bill so you've seen how engineering can really jump in a quarter and stay up for a while depending on what projects you have but you know.
Terms of.
Expectations, and what we expect to happen.
You know I would expect to see a sequential uptick each each court each quarter and then obviously hope to see if we can when we boost that with with a couple of big projects.
Okay. It makes total sense so.
The.
He was going to ask you.
The.
And and and and you know we need to continue to work on our margins because it's not just about adding revenue right, it's about adding quality revenue and.
Gross profit that you know.
Gross profit dollars that are driving our return model.
Okay.
Our back to health care, just for a second I was thinking.
Thinking about the comments, Brad you made about behavioral health.
<unk> really taking off is.
Is it.
Ben.
Where are you in terms of each.
Oh its importance to you in other words.
Is it becoming a meaningful percentage of revenue to be up or where you're still just starting that process.
I think it's the majority of the business at this point and you know frankly, we anticipate seeing it accelerate you know as you know we've been pretty excited about the story and positioned ourselves for accordingly, the last couple of years.
I wouldn't call it on the comm and Theres, certainly a bit of an increasing drumbeat.
But I think and I'll call it the last.
No.
Nine to 12 months I think you are seeing.
Meaningful increase.
And we anticipate that that activity continuing.
To go in the right direction I think naturally you think about some of the drivers of this from a macro perspective you know.
Oftentimes investment.
And this type of these type of social infrastructure initiatives are going to come on a lag and we think that's exactly what we're seeing so.
Very exciting part of the portfolio no question about it.
We think that theres plenty of upside there so any more.
And we're certainly willing to keep everybody posted as that continues to crystallize.
Okay and have you and I would add to that Bill that you know three years ago, our behavioral health revenue three or four years ago was primarily coming from two clients.
So today, we have well over 30 that were providing behavioral health services to us.
When I look at this behavioral health market for RCM, we're still in the first half.
First inning second at best right. So we just think there's amazing potential there. We think we can you know.
We just think there's so much growth out there now obviously, there's a lot of competition a lot of other companies that are going after this business, but there's just there's a lot of business out there for us to grow and we think our team is stellar.
And we're really excited to grab it you know there's only so much you can grab in one school year because once the contracts are set for that school year that you know.
You're not going to typically add like <unk>.
<unk> 5 million dollar client in the middle of school here, but we have a lot of potential to build 30 schools that approximately 30 schools that we're providing behavioral health and then hopefully when we get the next school year will have you know will add another 20, another 30 will say.
It's a really exciting business to be in and pump.
Roughly how many schools are you in now total.
About 70, where we're active roughly.
Okay.
Okay. Thanks for all the color guys.
Once again, if you'd like to ask a question. Please press star one on your telephone keypad.
Okay.
And it looks like we have a question from.
Thank Harry your line is open.
Good morning, gentlemen, great great quarter, great quarter.
Thanks for that particular lifestyle.
Life Science is heading to 40%.
Phenomenal absolutely outstanding and loved it loved to see topline growth, there and that that unit take over.
Switching over to the balance sheet on a actual trade accounts receivable.
Can you shed some light on there it just seems to see that we're losing significant traction.
Since our last call and since year end 12.
12.
31 22.
Sure I can I can speak about that Frank we talked a little bit on the last call.
So you know the.
The receivables relative to where the revenue right now.
Just too high and trade receivables period.
And we're doing a lot of different things to.
You know to get them down and get our dsos to look to a better level, but as I think you you know because you've got these battles before in your career.
Know that when you get into Q3 because our.
Revenue was somewhat back loaded.
Into September right because of the schools being closed in June and July we're always going to have sort of a wacky looking receivable slashed the sell in Q3 because of the cadence of how the revenue.
Income statement, obviously, youre not going to have any receivables.
You know in October relative to September right or at least very little.
So that's one factor in Q3.
If you look if you compare Q3 Q4.
Could be really Frank with you. We you know we had a little bit of a different revenue composition, where we had some clients that just ain't a lot faster than we do today.
Particularly when you start talking about some of the Covid related revenue that money was coming in very very fast.
The Dsos in Q4 are historically low for us.
Certainly a goal for us to get back to those levels, where we were in Q4, and we are working like hell to get there, but those those numbers are historically low.
And then if you look at the <unk>.
Today in the Dsos today.
Have a couple of clients that are really good clients high margin client.
Particularly in the life Sciences space to just pay a little like that that industry, it's not uncommon to get contracts for these big companies say you know paint.
Payment terms of 90 days take it or leave it if.
If you want the business you've got to wait 90 days right.
And we have a few clients like that that are fantastic clients very profitable even with the higher dsos. They fit our return model very very well. So that's one aspect that's contributing to the higher Dsos then when you flip over to the to the EPC clients a lot of the EPC clients.
And some of the utilities are also slow payers, but the overall cash flow effects of those engagements are excellent.
It's just that when you look at the trade.
So you just see they don't look great, but the overall cash economics of those clients are outstanding.
So you've got a couple of factors going on but I can assure you that we are working very hard to get.
DSO at a much level much lower level, where they were in.
Q2 and Q3.
Hey, Julie Dewey.
Kevin do it if they didn't do we have do have you said you were talking about DSO number. So you know where they are where were they in Q2 and Q3.
Well you know obviously people.
Calculate dsos differently right, but you know how I calculate them.
There were 84 in Q2, they were 90 in Q3, they were 79 in Q1 than they were at.
At an all time low in Q4 of 16.
So when we we get you know some some way somehow we.
We need to get the Mclaughlin.
Right because I think if we look on the flip side of that unexpected capital against that you know there could be a pickup of some.
As much as over a million one point to EBITDA. If we are if we collect those and turn them down into.
Against the line right.
Well, it's not going to impact EBITDA, it doesn't really matter of impacting our interest costs right.
Scott Mccrery included in EBITDA, and I stand corrected or no yeah, No E <unk>.
Earnings before interest so no it doesn't impact interests, but your point is a good one we are very very focused on cash flow.
And the most important mechanism.
<unk> return on.
Return on equity.
That's the most important thing we pride ourselves in having a very high return on equity and this is an important component of it.
Great.
Yeah.
Right.
And it looks like they were further along had a follow up question Eric Your line is open.
Yeah, I was just curious with Kevin about the tax rate in the quarter and what do you think about through the year.
Yeah, we had a one time discrete.
<unk> benefit in Q3 that helped us out.
But if it's just a Q3 thing.
I think when you start looking at Q4, you're probably looking at consolidated taxes.
28% to 29% roughly and I think we're gonna have a discrete item that's going to work the other way, it's going to bump it up a little bit in Q4.
Long term I think 28% is a pretty good range for you to use in your model.
Okay.
Thanks, again, guys have a good one.
And once you might be but I ask a question. Please press star one.
Yeah.
Yeah.
Okay doesn't look like do you have any more questions I'll turn it back over to you for any closing the mics.
Thank you for attending Rcm's third quarter Conference call. We look forward to our next update in 2024.
Yeah.
Okay.
This concludes your call you may now disconnect.