Q2 2024 RCM Technologies Inc Earnings Call
Good morning, and thank.
Thank you for joining us this is Kevin Miller, Chief Financial Officer of RCM technologies.
Kevin Miller: I am joined today by Brad Vizi, RCM Tech's Chairman. Our presentation on 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 change. 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 10K, 10Q, and 8K that we file 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 second class.
Speaker Change: I'm joined today by Brad Vesey, RCM as executive Chairman.
Speaker Change: Our presentation in this call will contain forward looking statements. The information contained in the forward looking statements 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 change.
Speaker Change: 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.
Speaker Change: Call over to Brad Vesey executive Chairman to provide an overview of our CMS operating performance during the second quarter.
Bradley Vizi: Thanks, Kevin. Good morning, everyone.
Brad Vesey: Thanks, Kevin.
Everyone.
Bradley Vizi: Second quarter growth was led by engineering, as project activity continues to ramp, building on the foundation carefully laid over the last several years. More importantly, its leadership corroborates a fundamental aspect of the RCM thesis. The success of our company is not predicated on any one division or discipline. In 2022, performance was propelled by the success of health care. In 2023, life sciences, data, and solutions will be a key filler to maintaining the company's trajectory, completing the transition to a post-COVID world.
Brad Vesey: Second quarter growth was led by engineering as project activity continues to ramp building on the foundation of carefully weighed over the last several years.
Speaker Change: More important engineering's leadership corroborate a fundamental aspect of the RCM basis.
Speaker Change: Success of our company is not predicated on any one division or discipline.
Speaker Change: In 2022 performance was propelled by the success of health care in 2023 life Sciences data and solutions or a key pillar to maintaining the company's trajectory completing the transition to a post COVID-19 world.
Bradley Vizi: And now, in 2024, we are witnessing the emergence of a world-class engineering division with the infrastructure to scale. Five years ago, we presented RCM not as a healthcare company, not as an IT practice, nor an engineering outfit. But an emerging world-class professional services firm that can compete and win on the global stage. That was the vision then, and this is our reality today.
Speaker Change: And now in 2024, we are witnessing the emergence of a world class Engineering division with the infrastructure to scale.
Speaker Change: Five years ago, we presented our <unk> not as a health care company not as a practice nor an engineering outfit.
Speaker Change: But an emerging world class professional services firm that can compete and win on the global stage.
Speaker Change: That was the vision then and this is a reality today.
Bradley Vizi: Also of note, we anticipate continued strong contribution from engineering, along with increased strength in the other two divisions in the back half of the year. Now I will provide a more granular update on the progress of each of our teams, starting with healthcare. RCM Self-Care Division, finish the school year strong. Looking ahead to the 2025 school year, we are extremely encouraged about our prospects.
Speaker Change: Also of note. We anticipate continued strong contribution from engineering, along with increased strength in the other two divisions in the back half of the year.
Speaker Change: Now I will provide a more granular update on the progress of each of our teams starting with healthcare.
Speaker Change: Rcm's Healthcare Division finished the school you're strong.
Speaker Change: Looking ahead to the 'twenty 'twenty four 'twenty 'twenty five school year, we are extremely encouraged about our prospects.
Bradley Vizi: We have successfully added many new school districts to our portfolio, several, which require 50 to 75 new providers. While the exact value of these districts is yet to be determined, RCM has a proven track record of entering new districts and quickly becoming the primary vendor. Our dedicated team is working tirelessly to streamline our recruiting and credentialing processes, reducing the time it takes to bring new providers onboard and into the field. This commitment to efficiency is not at the cost of quality but to ensure that we can meet the growing demands swiftly and maintain the high standard of service our clients expect.
Speaker Change: We have successfully added many new school districts to our portfolio several potentially acquiring 50 to 75 new providers.
Speaker Change: Well the exact value of these districts is yet to be determined RCM has a proven track record of entering new districts and quickly becoming the primary vendor.
Speaker Change: Our dedicated team is working tirelessly to streamline our recruiting and credentialing processes, reducing time, it takes to bring new providers onboard and into the field.
Speaker Change: This commitment to efficiency is not the cost of quality, but two inch but to ensure that we can meet the growing demand swiftly and maintain a high standard of service our clients expect.
Bradley Vizi: In addition to our domestic growth, we have significantly expanded our operations to the tilting. This expansion includes not only increasing our recruitment team but also building a robust operational support team. Investments in both our domestic and international operations, coupled with our on-leaver commitment to efficiency and high standards, position us strongly for continued growth and success. We are not just hopeful but confident that our efforts will drive significant value for our stakeholders as we continue to expand our footprint and enhance our service offering. In life sciences, data, and solutions, the second quarter showed continued progress as we implement our integrated approach.
Speaker Change: In addition to our domestic growth we have significantly expanded our operations in the Philippines.
Speaker Change: This expansion includes not only increasing our recruitment team, but also building a robust operational support team.
Speaker Change: Investments in both our domestic and international operations, coupled with our unwavering commitment to efficiency and high standards.
Speaker Change: Position us strongly for continued growth and success.
Speaker Change: We're not just hopeful but confident that our efforts will drive significant value for our stakeholders as we continue to expand our footprint and enhance our service offerings.
Speaker Change: In life Sciences data and solutions. The second quarter showed continued progress as we implemented our solutions integrated approach, we have seen a structural profitability increase relative to the historic performance at work to continue to strengthen the business.
Bradley Vizi: We have seen a structural profitability increase relative to historic performance and work to continue to strengthen the business. We believe our HCM practice is one of the premier partners in the industry. For the eighth straight quarter, we have exceeded implementation quotas for one strategic client.
Speaker Change: We believe our HCM practice is one of the Premier partners in the industry for.
Speaker Change: For the eighth straight quarter, we've exceeded implementation quotas for one strategic client.
Bradley Vizi: In life sciences, our Puerto Rico team just completed a successful 9-month, 15-person quality control project for a major fund of packaging company. Our life science commercial practice leads our growth as it continues to demonstrate its ability to assist clients to bring new products to market faster, cheaper, while improving compliance reporting. We continue to see strong interest in our managed service offerings, within support a branch, broad range of functions, ranging from our industry-leading RPC to quality, to validation and qualification, to application support, transitioning to engineering, starting with energy services. The second quarter of 2024 demonstrated robust results delivering revenue and need that that figure's exceeding core cap.
Speaker Change: In life Sciences, our Puerto Rico chain, just completed a successful nine months 15 person quality control project for a major pharma packaging company.
Speaker Change: Our life science commercial practice leads our growth as it continues to demonstrate its ability to assist clients to bring new products to market faster cheaper, while improving compliance reporting.
Speaker Change: We continue to see strong interest in our managed service offerings, we can support a broad broad range of functions ranging.
Speaker Change: Ranging from our industry, leading RPC to quality to validation and qualification to application support.
Speaker Change: Transitioning to engineering, starting with energy services second quarter of 2024 demonstrated robust results delivering revenue and EBITDA figures exceeded forecast.
Bradley Vizi: Backlog remains solid, and activity is healthy as we continue to execute against large engineering substation projects while maintaining high levels of client satisfaction. The EPC group maintains strong relationships with existing clients but also targets additional protection customers for new projects in the US, including Puerto Rico. To participate in the growing energy markets internationally, Energy Services is evaluating cooperation agreements in LATAM and Europe. The German office sees a significant increase in high-voltage substation demand and has begun staffing to prepare for further growth.
Speaker Change: Backlog remains solid and activity is healthy as we continue to execute against large engineering substation projects, while maintaining high levels of client satisfaction.
Speaker Change: The EPC group maintains strong relations.
Speaker Change: With existing clients, but also targeted additional potential customers for new projects in the U S, including Puerto Rico.
Speaker Change: To participate in the growing energy markets internationally energy services evaluating cooperation agreements in Latam and Europe.
Speaker Change: The German office sees a significant increase of high voltage substation demand and has begun staffing to prepare for further growth.
Bradley Vizi: Increasing our market awareness, Energy Services continued a strong presence in the most significant technical associations during the IEEE events in Puerto Rico and Anahon, California, becoming a major contributor in the electrical engineering industry for the upcoming secret Paris session this August. Energy Services will present, together with a large U.S. utility, an innovative technical paper on a future-oriented microgrip substation.
Speaker Change: Increasing our market awareness energy services continued a strong presence in most significant technical association's during.
Speaker Change: I truthfully events in Puerto Rico in Anaheim, California, becoming a major contributor in the electrical engineering industry.
Speaker Change: For the upcoming secret Paris session. This August.
Speaker Change: Energy services will present, together with a large U S utility and innovative technical paper of a future oriented micro groups substation.
Bradley Vizi: In-processing industrial, RCM thermal kinetics remains active in the zero carbon chemical production market with three equipment projects in various stages of completion. The Thermokinetics Office is also executing two ethanol plant optimization and expansion studies that integrate the patented energy integration design, enabling clients to lower their carbon intensity score. The team is also completing a detailed process design for a planned SAF facility for a US-based customer. Various tests are being conducted for our customers using test rigs for crystallization, filtration, and evaporation.
Speaker Change: And process and industrial RCM thermal kinetics remains active in the zero carbon and chemical production market with three equipment projects at various stages of completion.
Speaker Change: The thermal kinetics office is also executing to ethanol plant optimization and expansion studies that integrate the patented.
Speaker Change: Energy integration design, enabling clients to lower their carbon intensity score.
Speaker Change: The team is also completing a detailed process design for a planned S. A facility for a U S based customer.
Speaker Change: Various tests are being conducted for our customers utilizing test rigs for crystallization filtration and evaporation.
Bradley Vizi: The sales team is forced to focus on current market needs and has strategically taken and pursued business in the lithium market. That focus has yielded an engineering order placement this week for a lithium production facility in the United States. The Engineering Order involves the development of the Lithium solution chemistry and processing equipment design. The team also expects to close an equipment order for lithium refinement, which employs crystallization technology and downstream drying of crystals. This project is a good example of the strength of the TK team, and it's a supporting test center. The theoretical chemistry used in the Lithium solution chemistry is complex, and we mitigate the risk by running the process in the test center with the chemical engineers who are designing the plant.
Speaker Change: The sales team is forced on the current market needs.
Speaker Change: And and how strategically.
Speaker Change: Pursued business in lithium markets.
Speaker Change: That focus has yielded an engineering order placement this week for a lithium production facility in the United States.
Speaker Change: The engineering order involves the development of the lithium solution chemistry and processing equipment design.
Speaker Change: The team also expects to close an equipment order for lithium refinement, which employs crystallization technology and downstream drawing crystals.
Speaker Change: This project is a good example of the strength of the Teekay team and.
Speaker Change: Supporting Test center.
Speaker Change: A theoretical chemistry used in the lithium solution chemistry is complex and is derisked by running the process in the test center with mechanical engineers, who are designing the plant.
Bradley Vizi: Test Center continues to gain momentum and is at 100% utilization through Q2 and well into Q3 2024. We continually evaluate further investment in additional equipment for the test center that benefits our clients. RCM thermal kinetics recently presented at the Fuel Ethnic Workshop Trade Show in June.
Speaker Change: The test center continues to gain momentum and is at 100% utilization through Q2, and well into Q3 2024.
Speaker Change: We continually evaluate further investment in additional clip for the test center that benefits our clients.
Speaker Change: RCM thermal kinetics recently presented at the fuel ethanol workshop trade show in June.
Bradley Vizi: The focus, again, was plant optimization and identifying areas of improvement that our engineers excel at. The team remains focused on the continuation of our emergence as a market leader in responsible and sustainable chemical process design. The aerospace and defense group had mixed results in Q2-2024 due to a slower than anticipated recovery and aftermarket. However, EBITDA for the division remains healthy.
Speaker Change: The focus again was plant optimization and identifying areas of improvement that our engineers excel at.
Speaker Change: The team remains focused on the continuation of our emergence as a market leader in responsible and sustainable chemical process design.
Speaker Change: The aerospace and Defense group had mixed results in Q2, 2024, due to a slower than anticipated recovery in aftermarket.
Speaker Change: However, EBITDA for the division remains healthy.
Bradley Vizi: The Engineering Business is thriving, executing with three or new clients in Q2 2024. Our estimate of realizing a healthy increase in EBITDA for 2024 holds true, and the overall strategy remains the same, recognizing that most of our customers spend in the engineering domain. RFI's RFQs and MSA's expected to finalize have begun to produce new revenue in Q2, with an aggressive increase in headcount, revenue, and profit anticipated to escalate in the second half of 2024.
Speaker Change: Engineering business is thriving executing with three more new clients in Q2 of 2024.
Speaker Change: Our estimate of realizing a healthy increase in EBITDA for 'twenty 'twenty four holds true in the overall strategy remains the same.
Speaker Change: Recognizing most of our customers spend.
Speaker Change: And the engineering domain.
Speaker Change: RFID RF queues and MSA expected to finalize have begun to produce new revenue in Q2 with an aggressive increase in head count.
Speaker Change: Revenue and profit anticipated to escalate in the second half of 2024.
Bradley Vizi: The most significant piece of the business that has had an immediate impact is in the engineering arena with one of our new vertical lift customers, our current space customers, as well as our expansion into other divisions with one of our existing aerospace component manufacturers. We have realized much-anticipated increases in customer requirements in Q2. Our world-class recruitment team continues to successfully execute, which has a lot to experience a note where the increase in new hires.
Speaker Change: The most significant piece of the business that has had an immediate impact is in the engineering arena with one of our new vertical with customers our current space customers as well as our expansion into other divisions with one of our existing aerospace component manufacturers.
Speaker Change: We have realized much anticipated increases in customer requirements in Q2.
Speaker Change: Our World Class recruitment team continues to successfully execute which has allowed us to experience a noteworthy increase in new hires.
Bradley Vizi: We experienced a 54% increase in new hires in Q2 2024 versus Q1 2024. We expect to see this increase quarter over quarter in Q3 and Q4. We continue to drive and expand our model-based expertise software system, providing Mechanical and Avionics expertise throughout the customer base in Q2 2024, with continuous individual and partnership opportunities as well. Our new service offering, involving solving quality and production issues within the supply base of our clients, continues to grow with interest.
Speaker Change: We have experienced a 54% increase in new hires in Q2 2024 versus Q1 'twenty 'twenty four.
Speaker Change: We expect to see this increase quarter over quarter in Q3 and Q4.
Speaker Change: We continue to drive and expand our model based expertise software systems.
Speaker Change: Mechanical and avionics expertise throughout the customer base in Q2, 2024 with continuous inquiries and partnership opportunities as well.
Speaker Change: Our new service offering involving solve in quality and production issues within the supply base of our clients continues to grow with interest.
Bradley Vizi: New statements of work with major OEMs have been received with expanded skills and scheduled starts in Q3, Q4 2024, and Q1 2025. We will continue to expand our reach with these clients and prioritize these engagements throughout 2024 and 2025. We have received three large RFQs for engineering and aftermarkets within our OEM client base and with a potential new client in the air mobility arena. The outlook for the second half of 2024 is bright. Now, I will return the call to Kevin to discuss the Q2 2024 financial results in more detail. Thank you.
Speaker Change: New statements of work with major Oems have been received with expanded skills and scheduled starts in Q3, Q4, 2024 and Q1 2025.
Speaker Change: We will continue to expand our reach with these clients and prioritize these engagements throughout 2024 and 2025.
Speaker Change: We have received three large RF queues for engineering and aftermarket within our OEM client base and with with a potential new client in the air mobility Arena.
Speaker Change: The outlook for the second half of 'twenty 'twenty four is bright.
Speaker Change: Now I will return the call to Kevin to discuss the Q2 2024 financial results in more detail.
Kevin Miller: Thank you, Brad. Regarding our consolidated results, consolidated gross profit for the second quarter of 2024 grew by 6.6% as compared to 2023, from $18.8 million to $20.0 million. Adjusted EBITDA for the second quarter grew by 10.8% from $6.5 million to $7.5 million, and adjusted deluded EPS for the second quarter of 2024 grew by 12.0% from 50 cents to 66 cents. As for our segment performance, in the first quarter of 2024, engineering gross profit grew by 23.7%. Life Sciences data and solutions gross profit decreased by 17.9%.
Kevin: Thank you Brad regarding our consolidated results consolidated gross profit for the second quarter of 2024 grew by six 6% as compared to 2023.
Kevin: The $18 8 million to 20.0.
Kevin: Adjusted EBITDA for the second quarter grew by 10, 8% from $6 5 million to $7.2 million.
Speaker Change: Adjusted diluted EPS for the second quarter of 2024 grew by 12.0% from 50 to 66 cents.
Speaker Change: As for our segment performance in the first quarter of 2020 for engineering gross profit grew by 23, 7%.
Kevin: Science is data and solutions gross profit decreased by 17, 9% health.
Kevin Miller: Health Care Second Quarter Gross Profit through increased by 8.6%. If we remove the impact of COVID from the comparable second quarter of 2023, we estimate that second quarter 2024 revenue grew by about 11.1%. If we remove the impact of COVID and the deliberate reduction in services to a large, long-term but slow paying rehab, we estimate the second quarter of 2024 grew by about 19.1. School revenue of $30.8 million for the second quarter of 2021 grew by 23.0 after removing COVID revenue from the second quarter of 20.
Kevin: Health care second quarter gross profit grew by 8.6% if.
Kevin: If we remove the impact of Covid from the comparable second quarter of 2023, we estimate that second quarter 2024 revenue grew by about 11, 1%. If we remove the impact of Covid and the deliberate reduction in AR and services to a large long time slow paying rehab customers we.
Speaker Change: Estimated second quarter 2024 grew by about 19, 1%.
Speaker Change: <unk> revenue of $30 8 million for the second quarter of 2024 grew by 23.0% after removing COVID-19 revenue for the second quarter of 2023.
Kevin Miller: While we certainly consider our non-school revenue important for our future growth, our healthcare business is largely a school-based healthcare delivery. Our year-to-date 2024 school revenue for 2024 exceeds 83%. The 2023-2024 school year is the third school year since School's returned from virtual school. The 2023-24 school year is also the first school year to comprise zero COVID-related revenue.
Speaker Change: While we certainly consider our non school revenue important for our future growth our health care business is largely a school based health care delivery model our year to date 2020 for school Robyn Hill in 2024 exceed 83% with.
Speaker Change: For 2023 2020 for school year.
Speaker Change: Is this third school year since schools returned from virtual school. The 2023 'twenty four school year is also the first school year to comprise zero Covid related revenue, we see some exciting trends 2023 2020 for revenue of $109 8 million grew by 20.
Kevin Miller: We see some exciting trends; 2023-2024 revenue of $109.8 million, up 24.9% over 2022-2023 as the moving COVID-related revenue from the prior school year. Our non-COVID school revenue in 2022-2023 grew by 29.2% over 2021-2022. School revenue from the last pre-COVID year of 2018-2019 was $60.2 million, which we nearly doubled in 2023-2024. We now have 15 school districts that exceed $500K in revenue. In 2018-2019, we had three. For 2021-2022, we had five.
Speaker Change: Four 9% over 2022 2023, after removing COVID-19 related revenue from the prior school year, our non Covid School revenue in 2022 2023 grew by 29, 2% over 2021 and 2022.
Speaker Change: School revenue from the last pre Cove, a year of 2018, 2019 was $62 million, which we nearly doubled in 2023 2024. We now have 15 school districts that exceed 500 K in revenue in 2018 2019, we had three for 2020 one.
Speaker Change: 22, we had five.
Kevin Miller: We are optimistic; we'll get this well over 20 school districts, they exceed 500 k for the 2024 or 2025 school year, that begins in August or September. As our new school pipeline is the best it's ever been heading into a new school year. While we often don't know in July and August if a new school client will generate 50K or 500K in revenue, what I can say is that we've signed far more new school contracts for 2024, 2024, 2025 than we have at any time in our long history serving school days.
Speaker Change: We are optimistic we will get this well over 20 school districts. They exceed 500 K for the 2020 for 2025 school year that begins in August September of this year as our New school pipeline is the best it's ever been heading into a new school year, while we often don't know in July.
Speaker Change: August was a new school client will generate 50, K or 500 K in revenue when I can say is that we signed four more new school contracts for $24 20 for 2020 for 2025 than we have in any time in our long history, serving school districts.
Kevin Miller: As for the second half of Cisco 2024, we are optimistic that we will continue to see low double digits, consolidated, adjusted, even dog growth, as compared to Cisco 2023, with a similar quarterly cadence when compared to Cisco 20. This concludes our prepared remarks. At this time, we will open the call for questions.
Speaker Change: For the second half of fiscal 2024, we are optimistic that we'll continue to see low double digit consolidated <unk>.
Speaker Change: Justice EBITDA growth as compared to fiscal 2023, with a similar quarterly cadence when compared to fiscal 2023.
Speaker Change: This concludes our prepared remarks at this time, we will open the call for questions.
Operator: Yes, then, with that, ladies and gentlemen, please press star one on your telephone keypad. If you would like to join the question queue, press star one on your telephone keypad to join the question. All right, first on our stage is Alex Rygiel, B. Rowley Securities.
Speaker Change: Yes.
Speaker Change: <unk> and gentlemen, please press star one on your telephone keypad, if he would like to join the question queue.
Speaker Change: It is star one on your telephone keypad to join the question.
Speaker Change: Yeah.
Speaker Change: Oh right right that we have out right now B Riley securities.
Alexander Rygiel: Thank you, Brad and Kevin, a very solid quarter, and I used to see you. Thank you.
Speaker Change: Thank you, Brad and Kevin very solid quarter and nice to see.
Speaker Change: Thank you thank.
Speaker Change: Thank you.
Alexander Rygiel: A couple quick questions here. First, schools business, obviously, it's doing fantastic. But the strengthening of schools business and the commentary, which regards engineering and further segments, it all seems very bullish and more bullish than low-double-digit-eba-dog growth. So I wanted to talk a little bit about, you know, maybe help us to understand that and what I feel is maybe a conservative target.
Speaker Change: Couple of quick questions here first schools business, obviously, it's.
Speaker Change: Fantastic.
Speaker Change: With the strengthening of cool business in the commentary.
Speaker Change: With regards to engineering.
Speaker Change: The other segment.
Speaker Change: It all seems very bullish more bullish than <unk>.
Speaker Change: Low double digit EBITDA growth. So I wanted to talk to you a little bit about you know.
Speaker Change: Maybe helping us to understand.
Speaker Change: What I feel is maybe a conservative target.
Speaker Change: Well just bear in mind, we're talking about Q3 and Q4 of this year.
Speaker Change: You know a lot of that.
Speaker Change: Revenue was sort of already banked right.
Speaker Change: The schools don't really get going until sort of like the second week in September I mean, they kind of sprinkle in August and into September.
Speaker Change: And we often don't know how strong they are going to start in terms of the new schools and even some of the longtime client sometimes start a little slow and then ramp up.
Speaker Change: We're very bullish on the school year in general, but you know we have some.
Speaker Change: If you look at the numbers.
Speaker Change: Compared to 2023.
Speaker Change: We had a pretty big jump in Q4 from Q3 right. So you know.
Speaker Change: Basically we're predicting sort of a temporary 10% ish.
Speaker Change: The increase in EBITDA is already baking in a pretty nice increase in terms of the sequential.
Speaker Change:
Speaker Change: The sequential movement of revenue and EBITDA, but yeah, I mean, we are being a little bit conservative, but that's by design because obviously.
Speaker Change: You know things can change pretty rapidly and we don't want to put big numbers out there obviously.
Speaker Change: And then Brad Yeah, as you think about sort of the next 12 months.
Brad Vesey: From a revenue standpoint, which segment do you think grows the fastest.
Bradley Vizi: Well, that's an interesting question. You know, look, we think about the business every single day. So we can set, you know, work with the team leaders to help set that business up for success, t plus two, t plus three, and well into the future. So, you know, naturally, when you look at the strength of all three of these businesses, right, you know, being able to underwrite the success relative to one another over the short term, right, based on drivers that, you know, were invested in and put in place two, three, you know, potentially two, three years ago, right?
Speaker Change: [laughter].
Speaker Change: Wow.
Speaker Change: That's interesting.
Speaker Change: Interesting question.
Speaker Change: Look.
Speaker Change: We think about the business every single day, so we can.
Seth: Seth you now work with the team leaders to help set that business up for success T plus two T plus three and.
Speaker Change: And well into the future. So you know nationally when you look at you know how the strength of all three of these businesses right now being able to underwrite the success relative to one another over the short term right based on drivers that we're invested in it.
Bradley Vizi: It can become difficult from an underwriting perspective. However, I think that this emphasizes a really key point: you know, quite a bit of confidence can be gained from the platform, right? This collection of businesses that was built up, right? When you think about the underwriting of outcomes, both short and long term. But when you isolate any one of the divisions over a short period of time, right, inevitably, there could be some, some gyration, you know, that's expected and, frankly, unexpected. So, you know... Sorry if it's a little bit too much or not enough, Alex, but I hope that answers your question.
Speaker Change: In place now.
Speaker Change: Two three.
Speaker Change: Potentially two or three years ago right. It can become different difficult from an underwriting perspective. However.
Speaker Change: I think that this emphasizing a really key point is you know.
Speaker Change: Quite a bit of confidence can be gained in the platform right. This collection of businesses that was built up.
Speaker Change: When you think about the underwriting of outcomes, both short and long term.
Speaker Change: But when you isolate any one of the divisions over a short period of time right inevitably there could be some some gyration.
Speaker Change: As expected and frankly unexpected.
Speaker Change: So you know.
Speaker Change: Sorry, if it's small but too much or not enough, Alex but I hope that answers your question.
Bradley Vizi: and lastly, Balanchee's pretty strong, so quick thoughts on Capital Education Priority.
Speaker Change: And lastly, our balance sheet is pretty strong so quick thoughts on.
Speaker Change: <unk>.
Speaker Change: Capital allocation priority.
Bradley Vizi: Yeah, look, you know, we've always tried to play this down the middle. And, and, you know, just be very open-minded and flexible and be in a position to move opportunistically. So not necessarily to manage the balance sheet to any one quote, optimal capital structure, right, but to be nimble and flexible, right, and be in a position to also, you know, manage your risk profile and keep it relatively low. Um, you know, with respect to, you know, share buybacks, obviously, you know, we've been very active over the last several years.
Speaker Change: Yeah look you know we've always tried to play this down the middle and just be very.
Speaker Change: Open minded and flexible and be in a position to opportunistically, so not necessarily mount manage the balance sheet to any one crude optimal capital structure, right, but to be nimble and flexible right and be in a position to also.
Speaker Change: Manage our risk profile and keep it relatively well.
Speaker Change: Yeah. So with respect to you know share buybacks, obviously, we've been very active over the last several years.
Bradley Vizi: You know, well, over 40% of the company at this point has been retired. At the same time, you know, opportunities on the M&A front have continued to strengthen the pipeline. But we're not going to deviate from our baseline plan, you know, with respect to evaluating opportunities that we can bolt on to the platform that we believe we can grow substantially and have an alignment and culture and vision with the existing base.
Speaker Change: Well over 40% of the company at this point has been retired.
Speaker Change: At the same time, you know opportunities on the M&A front it continues to be.
Speaker Change: The pipeline continues to strengthen.
Speaker Change: But we're not going to deviate from our baseline plan now with respect to evaluating opportunities that we can bolt ons to popcorn that we believe we can grow substantially and have an alignment in culture and vision right with the existing base. So you know, we always say one plus one equals five over.
Bradley Vizi: So, you know, we always say one plus one equals five. You know, in the near term, in terms of the opportunity set, the ones I think are probably most relevant are in engineering, but that can change too. So, you know, on the capital allocation front, like, as you said, we've been pretty consistent under a million, one turn of EBITDA of leverage. It's not that we're wed to that mark, but that seems to be, you know, right where we are. Things have fallen nice into place as far as the model.
Speaker Change: The near term in terms of the opportunity set the ones that I think are probably the most relevant are in engineering.
Speaker Change: In engineering.
Speaker Change: That can change too.
Speaker Change: So are you now on the capital allocation front like as you said, we've been pretty consistent now.
Speaker Change: Under a million one turn of EBITDA of leverage.
Speaker Change: It's not that we're wed to that mark, but that seems to be right where we.
Speaker Change: Things have fallen nicely into place as far as the model.
Alexander Rygiel: Very helpful. Thank you very much. Nice quarter.
Speaker Change: Very helpful. Thank you very much nice quarter.
Speaker Change: Thank you.
William Sutherland: All right, next up was Bill Sutherland of March.
Speaker Change: Oh right next step with the Bill Sutherland of Smart.
Bradley Vizi: Thanks, guys, okay Brad, you mentioned a 54% increase in the new hires, I think, for the first half, and I guess if you clarify that's the time frame and whether it's all engineering.
Bill Sutherland: Thanks, Hey, guys, Hey, Brad you mentioned.
Speaker Change: The 4% increase in.
Speaker Change: The new hires I think for sure.
Speaker Change: Firsthand and I guess I guess just.
Speaker Change: To clarify that's the.
Speaker Change: The time frame and whether it's all of engineering.
Bradley Vizi: That's aerospace. Frankly, aerospace was a little bit more sluggish than we anticipated as a whole in the first half. However, our confidence and the crystallization of that pipeline are improving. So those remarks are relative to aerospace.
Speaker Change: Oh, Yeah, that's aerospace.
Speaker Change: Frankly, aerospace was a little bit more sluggish than we anticipated as a whole.
Speaker Change: Hum.
Speaker Change: Our confidence in the crystallization of that pipeline is improving.
Speaker Change: Those remarks are almost an aerospace okay. Thanks.
Unknown Speaker: Okay, thanks. Unknown Speaker A little dip, quarter, quarter, you know, or more pronounced than you usually see in life size. That's just project timing.
Speaker Change: Little dip quarter quarter and.
Speaker Change: Were more pronounced than you usually see in Lifesize, that's just project timing.
Speaker Change: Good guess, that's a little bit of timing. So we had a particular high margin project come to an end in.
Speaker Change: In Q2 of last year.
Speaker Change: Basically what we're gonna back we're back to linguists started a little bit later in Q3. So no. We actually think how'd you get to the back half of Q3 and into Q4, you should be a very healthy uptick in that business.
Kevin Miller: And when you, when you were, maybe Kevin refers to districts, school districts in the pipe. Are those ready? I mean, those are signed, and just, you know, it's an implementation pipeline, or is this a new one?
Speaker Change: Okay.
Speaker Change: And when you.
Speaker Change: When you work with.
Speaker Change: Maybe Kevin refers to districts school districts in the pipe.
Speaker Change: Are those ready I mean, those are signed in just you know, it's an implementation pipeline or is this a.
Kevin Miller: We have a significant number of school districts that are signed, you know, over 20 actually, and we think we're hopeful we'll sign over 30 new school districts starting next year, and that's a pretty significant number. Now, on the flip side, I caution you, because we just..., you know, we get into these schools and sometimes we're pretty disappointed with the number of wrecks that we have. But we've never, you know, been sitting here in July with the number of new school districts that we have. Um, so hopefully we can, you know, penetrate, I don't know, meaningfully, some of them. Maybe more, we'll just have to see how it all plays out, but it's a really exciting time for the healthcare business.
Speaker Change: Hello.
Speaker Change: A significant number of.
Speaker Change: You know of school districts that are signed.
Speaker Change: You know over 20 actually.
Speaker Change: And we think well we think we will we were hopeful we'll sign over 30, New school districts heading into next year.
Speaker Change: And that's a pretty significant its a really significant number now on the flip side I have to caution you because we just you know.
Speaker Change: Now we get in to the schools and sometimes were pretty disappointed with the number of reps that we get.
Speaker Change: But we've never been sitting here in July with the number of New school districts that we have for next year.
Speaker Change: So hopefully we can.
Speaker Change: Penetrate I don't know mean.
Speaker Change: Meaningfully 10 of them.
Speaker Change: Maybe more we'll just we'll just have to see how it all plays out.
Speaker Change: But it's it's it's a real exciting time for the health care business.
Kevin Miller: So just to be clear, the 20 you've got signed up, or more than 20? That's for the 24, I'm sorry, for the 25-26 school year.
Speaker Change: So just to be clear the 20, you got signed up for more than 20.
Speaker Change: That's for the 24 I'm sorry, if its 25 26 school year.
Kevin Miller: No, for 24-25, they're starting in, you know, August-September. I mean, we're recruiting for some of them.
Speaker Change: No for 'twenty four 'twenty five they're starting in.
Speaker Change: August September I mean, where we were recruiting for some of these schools right now.
Kevin Miller: Okay, okay. When I say 24-25, just to be clear, and different schools in different parts of the country start at different times. They start anywhere from early August to sort of early September, and they end anywhere from early May to late June, right? So, when I talk about school years, I'm talking about our third and fourth quarters added to our first and second quarters for any school year. Right, right, right. And then last, just, looking at the cash flow and seeing that the second quarter, kind of in terms of operating cash flow, was pretty much in line with the first quarter. Should we think about the back half being like the first half? I hope it's better. You know, I hope.
Speaker Change: Okay, Okay, and then the 30%.
Speaker Change: When I say 'twenty four 'twenty five just to be clear.
Speaker Change: And and different schools in different parts of the country started different times you can really start anywhere from early August just sort of early September and the end anywhere from you know early may too late too right. So when you when I talk about school years, I'm talking about our third and fourth quarter.
Speaker Change: Added to our first and second quarter for a school year right right.
Speaker Change: Alright.
Speaker Change:
Speaker Change: And then last just.
Speaker Change: Looking at the cash flow and seeing that second quarter kind of in terms of operating cash flow was.
Speaker Change: Pretty much in line with first quarter should should we think about the back half being like the first half.
Kevin Miller: You know, I hope it's better. I expect, you know, the third quarter to be strong, right? You know, we have a drop in revenue due to seasonality, so that naturally is going to boost cash flow. Obviously, the revenue spikes back up in Q4, which will hurt cash flow, but we're working hard to, you know, improve our DSOs in Q4 to sort of offset. So, when we look at the second half versus the first half, I expect the second half cash flow, you know, when you take Q3 and Q4 and add them together, to be better than Q1. I'll be disappointed if it's not on. And that's, you know, cancelled from operation, so obviously.
Speaker Change: I hope it's better.
Speaker Change: You know I hope it's better.
Speaker Change: Back you know the third quarter should be strong right because.
Speaker Change: We have a drop in revenue due to seasonality.
Speaker Change: That naturally is going to boost cash flow, obviously, the revenue spikes back up in Q4, which will hurt cash flow but.
Speaker Change: I just you know we're working hard to improve.
Speaker Change: Improve our dsos in Q4 to sort of offset some of that so.
Speaker Change: So when we when we look at the second half versus the first half I expect second half cash flow.
Speaker Change: When you take Q3, and Q4 and add them together to be better than Q1 and Q2.
Speaker Change: Be disappointed if its not in there.
Speaker Change: Cash flow from operations lobbies.
Speaker Change: Okay.
Bose: Thanks Bose.
Speaker Change: Yeah.
Operator: All right. At this time, there are no further questions. Thank you. So, for my participants, you can press star one on your telephone keypad. If you want to get a last minute question in, that's star one on your telephone keypad. All right, we did get one more. Frank Kelly, the line is:
Kevin Miller: Well, just bear in mind, you know, we're talking about two, three, and two, four of this year, you know, a lot of that revenue is sort of already baked, right? The schools don't really get going until sort of like the second week in September. I mean, they kind of sprinkle in during August and September. And we often don't know, you know, how strong they're going to start in terms of the new schools. And even some of the long-term clients sometimes start a little slow and then ramp up.
Speaker Change: Yeah.
Speaker Change: Alright, and at this time there are no further questions in queue. So I'll remind participants you can press star one on your telephone keypad. If you want to get a last minute question Ann that star one on your telephone keypad.
Speaker Change: Oh Hollywood you get one more Frank Kelly Your line is now open.
Frank Kelly: Gentlemen, great quarter, certainly seems to be on the right track on the right trend, a little bit better in AR. But can you shed some light, Kevin, on the SG&A line item? Year over year, it's up over 6%. And revenues, obviously, are not. But last year, at this time, when we were on the call, we said, Oh, well, we're investing. We're investing in, you know, infrastructure and whatnot, and staff. And we've been doing that now, obviously, for the last year.
Speaker Change: Yeah.
Frank Kelly: Gentlemen, great quarter.
Frank Kelly: Certainly seems to be on the right on the right trend a little bit improvement in EMEA are but can you shed some light Kevin on the SG&A line item.
Kevin Miller: At our year over year, it's up over 6%.
Speaker Change: And revenues, obviously, you're not but last year at this time when we were on the call. We said Oh, well, we're investing we're investing in infrastructure and whatnot.
Kevin Miller: What what, what drives that additional six plus percent in SG&A? And what are we doing to kind of keep up? You know, there's really two general drivers of it. Well, three, I would say.
Speaker Change: Whatnot and staff and we've been doing it now obviously for the last year, what what what drives that additional six plus percent in SG&A and what are we doing to kind of keep it.
Kevin Miller: One is just, you know, the natural inflation of costs, right? You know, labor goes up, costs, the cost of technology goes up, rent goes up in some areas. So, you know, that's one.
Speaker Change: You know, there's there's really two general drivers of it are well three I would say.
Speaker Change: Wanted to just natural inflation of costs right. You know labor goes up towards the cost of technology goes up rent goes up in some areas.
Speaker Change: So that's one two is where we're making a big investment in technology.
Kevin Miller: Two is we're making a big investment in technology, and particularly cybersecurity is an area where we've had to put a lot of money into it just to keep up with, you know, making sure our company doesn't get taken down by, you know. And there's a lot of money that's been invested in cybersecurity and other IT, and of course, just investing in infrastructure to support the growth, com, especially in health. I mean, you know, if we over hire a little bit in healthcare, we'll figure it out later.
Frank Kelly: And we're.
Frank Kelly: Particularly in cyber security.
Frank Kelly: <unk> is an area, where we've had to put a lot of money into it.
Frank Kelly: Just to keep up with you know, making sure our company I think you've taken down by you know cyber threats right and there's a lot of money that's being invested in cyber security and other it initiatives and of course, just investing in infrastructure to support the growth that we expect to come especially on the health care side.
Frank Kelly: <unk>.
Frank Kelly: If we over higher a little bit in health care will figure it out later right.
Kevin Miller: But we'll hire as many recruiters in healthcare as we can find, just as in any area. And we're continually investing in SG&A. By the same token, you know because you've followed the company for a long time, we continually look to reduce SG&A as well. So we'll continue to look for opportunities and bring down certain areas where you just can't bring it down, and you just, you know, like the cost of being a public company, for instance, has just gone up incredibly over the last couple years, way above, way above, so, you know, but we'll continue to look for opportunities. For instance, Brad mentioned something about opening up an office in the field, and we're going to continue to So, you know, we'll continue to look for ways to grow our gross profit.
Frank Kelly: But we'll hire as many recruiters in health care as we can find just is an area. We're continuing continually investing in SG&A.
Frank Kelly: At the same token you know because you've followed the company a long time, you know, where we continually look to prune SG&A as well. So we'll continue to look for opportunities to bring you know there's certain areas, where you just can't bring it down.
Frank Kelly: And you just you know like the cost of being a public company for instance has just gone up incredibly over the last couple of years like.
Frank Kelly: Way above way above double digits.
Frank Kelly: So.
Frank Kelly: But we'll continue to look for opportunities for instance, you know Brad mentioned something about opening up an office in the Philippines.
Brad Vesey: And we're going to continue to leverage some of the talent over there that is.
Brad Vesey: A lot cheaper than it is here.
Brad Vesey: So we'll continue to look to look to ways to grow our gross profit.
Brad Vesey: And an amount that significantly E&C exceeds the growth in SG&A and that's sort of the way we looked at it Frank I don't I don't pay attention as much to the revenue growth relative to SG&A I look at the look at the growth in AR.
Kevin Miller: in an amount that significantly affects. University of Minnesota, series.
Kevin Miller: I don't, I don't pay attention as much to, you know, revenue growth relative to SG&A. I look at the growth in, you know, gross profit versus SG&A. And we can continue, we can continue to improve that, and we, you know, and we will.
Brad Vesey: You know in in gross profit versus SG&A and we can continue we can continue to improve that ratio.
Bradley Vizi: Yeah, Frank Frank, one thing I just add real quick, right? It's starting to think about the company more as, you know, a 500-dollar company and a billion-dollar company. So, you know, naturally, when you look at RCM historically, right, you know, the infrastructure, we've under, we, we underinvest a little bit, Frank, in an infrastructure. And, you know, that was in our existing state. Now when you start to think forward, right? It was building a much larger company and an international company. Right?
Brad Vesey: And we will.
Frank Kelly: Yeah, Okay. So.
Frank Kelly: Frank One thing I'd, just add real quick right. It's it's starting to think about the company more as you know 500 joined our company in the $1 billion company right. So you know naturally wouldn't look at RCM historically right now the infrastructure, we've under we underinvested, but frankly in infrastructure.
Frank Kelly: And that was in our existing states now when you start to think forward right towards building a much larger company an international company right.
Frank Kelly: Boy you know in addition to catching up on some of that investment right that brings a whole another profile of.
Frank Kelly: Of infrastructure and look the good news is.
Frank Kelly: It's well under way as always we're measured and thoughtful about how we add dollars into our cost structure.
Frank Kelly: Yeah, so far so good right.
Speaker Change: Revenue growth in G P accelerate naturally the fall through should as well.
Kevin Miller: Right, great, understood, and things like bricks and mortar, spot locations that are becoming more and more unnecessary at this point. I'm sure we're looking at those as well to kind of bring down some of that cost.
Speaker Change: Right, great and understood and things like bricks and mortar are spot locations that are becoming more and more unnecessary at this point.
Speaker Change: I'm sure we're looking at those as well to kind of bring down some of that expensive SG&A.
Kevin Miller: For sure, but our bricks and mortar store has come down, and we're left. It's not going to be a surprise to you, but we do think that, depending on the business. Having bricks and mortar is really important. We don't need the same amount of space per square foot per person that we needed, you know, six, seven years ago. But, you know, we still think it's really important to have bricks and mortar space for people to come to the office, you know, a couple days a week.
Speaker Change: For sure, but our bricks and mortar cost have come down over the last couple of years back with us.
Speaker Change: You're not going to be a surprise to you, but we do think that.
Speaker Change: Depending on the business.
Speaker Change: Having bricks and mortar is is really important we don't need the same amount of space on a per square foot per person that we needed you know six seven years ago, but we still think it's really important to have bricks and mortar space for people to come to the office you know a couple of days a week and again it depends on the business and some businesses that we have.
Kevin Miller: And again, it depends on the business. There are some businesses that we have that are pretty much, you know, 95% remote, and there are others that aren't. But we'd like to have a space where our employees want to come to work, and they want to collaborate, and they want to learn, and they want to get trained. You know, it's important to us to have that. So we're not, you know, we're not ever going to move to, you know, a fully remote company, but we're always looking to, you know, to keep those costs down. You know, I love Sublaces, and we have a couple of them that are pretty cheap, and we just continue to look to drive those costs down anywhere we can.
Brad Vesey: That are pretty much you know, 95% remote and there's others that aren't.
Bradley Vizi: And Brad, yeah, as you think about sort of the next 12 months. From a revenue standpoint, which segment do you think grows the fastest?
Brad Vesey: But we'd like to have.
Brad Vesey: Space, where our employees want to come to work and they want to collaborate and they want to learn and they want to get trained you know I think it's important to us to have that space.
Brad Vesey: So we're not we're.
Brad Vesey: We're not ever going to move to a fully remote company, but we're always looking to do.
Brad Vesey: To keep those costs down and you know you you know I love some leases and we have a couple of those.
Brad Vesey: That are pretty cheap.
Brad Vesey: We just continue to look to drive those costs down any way we can.
Bradley Vizi: Frank, next time you're in Pensahawken, why don't you stop by HQ? You'll feel pretty good about the leases that we're investing in. And when you think about some of our higher leases, they tend to resemble more training centers and be much more functional. As you walk through the facilities, it's pretty clear that there's an ROI associated with those investments.
Brad Vesey: Yeah, Frank next time, you're in pencil Hawken, why don't you stop why HQ.
Brad Vesey: You'll feel pretty good about you know are.
Brad Vesey: The leases that we're investing in.
Brad Vesey:
Brad Vesey: And when you think of when you think about some of the a little bit or higher leases right. They tend to resemble more trader set of training centers being much more functional you know as you walk through the facilities.
Brad Vesey: It's pretty clear that there is an ROI associated with those investments.
Frank Kelly: Great. We'll do it. We'll do it.
Frank Kelly: Great, we'll do, we'll do, thank you for the air off.
Speaker Change: Great, we'll do we'll do it.
Brad Vesey: Awesome.
Tom: Hey, Tom.
Operator: And the final question for you.
Brad Vesey: Okay.
Speaker Change: And gentlemen, there are no final questions.
Operator: Thank you for attending RCM's second quarter conference call. We look forward to our next update in November.
Speaker Change: Thank you for attending Rcm's second quarter Conference call. We look forward to our next update in November.
Operator: and with that, ladies and gentlemen, this does conclude your call. You may now disconnect your devices, and thank you again for joining us today.
Speaker Change: And with that ladies and gentlemen. This does concludes your call you may now disconnect your lines and thank you again for joining us today.
Unknown Speaker: Good guest, that's a little bit of timing, so we had a particular high-margin project come to an end in Kingston last year and basically, what we're going to back to linked with started a little bit later in Q3, so we actually think as you get to the back half of Q3 and into Q4, there should be a very healthy uptick in that business.
Kevin Miller: So it's, you know, we're very bullish on the school year in general, but, you know, we have some concerns if you look at the numbers. You know, compared to 2023. We had a pretty big jump in Q4 from Q3, right? So, you know, basically predicting sort of a 10%, you know, 10% ish, you know, increase in EBITDA is already baking in a pretty nice increase in terms of the sequential movement of revenue and EBITDA. But yeah, I mean, we are being a little bit conservative, but that's, you know, by design, because obviously, things can change pretty rapidly, and we don't want to put big numbers out there.
Bradley Vizi: And, evidently, you know, in addition to catching up on some of that investment, right? You know, that, you know, brings a whole new profile of infrastructure. And, you know, look, the good news is, you know, it's well underway. As always, we're measured and thoughtful about, you know, how we add dollars to our cost structure. So, you know, so far, so good, right? And as revenue grew in GP accelerated, right? Naturally, but the falter shed as well.