Q3 2024 RCM Technologies Inc Earnings Call
This is the operator, may I have your name please?
This is the operator may I have your name please.
Speaker Change: And Mr. Brian what is your company name.
Speaker Change: Okay I will place you can have a good day.
Speaker Change: Youre very welcome.
Speaker Change: The need for ethanol plants to expand has evolved into a marketing campaign.
Speaker Change: Employs engineering and equipment designs not typically used in the ethanol space.
Speaker Change: Teekay engineers, bringing a wealth of petroleum engineering knowledge, which has become the basis for the launch of the Teekay next campaign.
Speaker Change: New ethanol expansion technology.
Speaker Change: The office expects its first equipment order from the campaign in November expanding a plant from 85 million gallons per year to 100 or 5 million gallons per year.
Speaker Change: The project will have a 12 to 18 month, ROI, providing a compelling value proposition to the client.
Speaker Change: The team has completed a detailed process design and firm proposal for a planned S. A facility for a U S based customer.
Speaker Change: This project has a tentative Q1 equipment order schedule.
Speaker Change: A large engineering order is utilizing engineering at lab resources to develop novel solution chemistry for a customer plant lithium facility in the U S.
Speaker Change: Equipment first facility is scheduled for purchase in late Q1.
Speaker Change: This project is a good example of the strength of the Teekay team and the supporting Test Center.
Speaker Change: Two major customers are in the final stages of either exclusivity or partnership agreements with Teekay.
Speaker Change: One client has used teekay exclusively who support the proprietary C O two capture conversion plants for seven years.
Speaker Change: The test center continues to exhibit strong utilization through the end of 'twenty 'twenty four and inventory 25.
Speaker Change: The team remains focused on continuation of their emergence as a market leader in responsible and sustainable chemical process design.
Speaker Change: Within aerospace and defense the engineering business is thriving as we continue to build our infrastructure within the three new clients, we secured in Q2 2024.
Speaker Change: Headcount has more than doubled in two of these new clients in Q3.
Speaker Change: Our estimate of realizing a significant increase in gross profit for 2024 compared to 2023 still holds true and the revenue run rate has now increased.
Over $100000 per week.
Speaker Change: The RFID <unk> RF queues and MSA expected were finalized and therefore, we have experienced an aggressive increase in head count revenue and profit, which we expect to continue to grow through Q4 2024.
Speaker Change: We have realized much anticipated increases in customer requirements in Q3.
Our world class trusted recruitment team continues to successfully execute which has allowed us to experience twice the amount of new hires in Q3 compared to Q2.
Speaker Change: As anticipated we had been awarded a new multi year contract in Q3 with one of the largest aerospace and defense Oems.
Speaker Change: This award will allow us to drive and expand our model based expertise software systems logistics mechanical and avionic expertise throughout 'twenty 'twenty, four 2025 and 2026.
Speaker Change: We have also been awarded a large contract with another easy toll manufacturer and our aftermarket arena.
Speaker Change: Which is expected to help the group recover and deliver a strong 2025.
Speaker Change: We also continue to build within our current client base due to challenges they are facing with expansion in their direct workforce because wasteful.
That's by smaller and shorter timeframe contracts.
Speaker Change: First three quarters of 'twenty 'twenty four set us up for a much improved Q4 and beyond.
Speaker Change: Now I'll return the call to Kevin to discuss the Q3 'twenty 'twenty four financial results in more detail.
Kevin: Thank you Brad regarding our consolidated results.
Holiday to gross profit for the third quarter of 2024 grew by three 2% as compared to 2023 from $17 3 million to $17 8 million consolidated gross profit for the third quarter year to date grew by five 7% as compared to 2023 from $55 1 million to $58.
Kevin: 2 million adjusted EBITDA for the third quarter grew by nine 5% from $5 1 million to $5 6 million adjusted EBITDA for the third quarter year to date grew by 10, 5% from $17 7 million to $19 6 million as for our segment performance in the <unk>.
Third quarter of 2020 for health care gross profit grew by 11, 1% engineering gross profit increased by five 1%.
Kevin: Life Sciences data and solutions gross profit decreased by 13, 1%.
Kevin: As for health care, our health care third quarter revenue School revenue grew by 16, 3% from $17 3 million to $22 million on our last call. We talked about a record number of new school contracts heading into 2020 for 2025, while we're pleased with 16, 3%.
Kevin: Growth several new contracts started slow and have demonstrated a steepening ramp as the year progresses, we remain optimistic that school revenue for the 2020 for 2025 school year ending in June 2025 will yield growth in the neighborhood of 20% non.
Kevin: Non school revenue was $6 4 million as compared to $7 six months. However, if we remove a large long term care group, where we deliberately reduced services revenue was flat at $5 $6 million in both periods. We do expect a healthy sequential growth to non school.
Kevin: Revenue in the fourth quarter of 2024.
As for the fourth quarter of fiscal 2024 consolidated results. We remain optimistic that we will see attractive consolidated adjusted EBITDA growth as compared to fiscal 2023. This concludes our prepared remarks at this time, we will open the call for questions.
Speaker Change: And with that ladies and gentlemen, if you would like to ask a question you may practice star one on your telephone keypad once again Thats star one on your telephone keypad to ask a question.
Speaker Change: And first up Bill Sutherland Your line is now open.
Bill Sutherland: Thank you Hey, guys.
Bill Sutherland: Wanted to Kevin just stay on health care for a second.
Speaker Change: Got you.
Speaker Change: You're saying that for the quarters corresponding with the <unk>.
Speaker Change: Current school year.
Speaker Change: You are.
Speaker Change: Looking for.
Speaker Change: The school revenue to grow 20%.
Speaker Change: So, let's say through food.
Speaker Change: And in the next year.
Speaker Change: In the neighborhood of 20% I think is what I said.
But yes, now just just to be clear the scoop. The current school year that we're in now you know is.
Is the third quarter of this your third and fourth quarters of 2024, and the first quarters of two first.
Speaker Change: First two quarters of 2025 right right. So school years generally you know run from July through June So when we get to the end of 2020 for 2025 school year, we where we're optimistic that the revenue growth school year to school year will be in the neighborhood of 20% yes.
Speaker Change: Yes.
Speaker Change: And you.
Speaker Change: You had said that on the last call.
Speaker Change: But this this is due to having 20.
Speaker Change: Additional more.
Speaker Change: More than 20 school districts.
Speaker Change: Averaging half a million each.
Speaker Change:
Speaker Change: And.
Speaker Change: The additional scale.
Speaker Change: Presentation.
Speaker Change: Yes, yes no.
Speaker Change: We've added much more than.
Speaker Change: We've added more than 20 new contracts.
Speaker Change: Considerably more than 20 are now some of those will turn out to be small and some of those will turn will hopefully start strong and we sign a lot of new <unk>.
Not as many new school contracts prior to the last school year, but some of those that started off small last school year are now you know we're seeing some nice traction. This year. So I don't know that we're going to see 20, new schools become $500000 of your client and I don't think Thats exactly what I said I think we talked about getting.
Speaker Change: Over 20 schools, you know being about 500000, but at any rate. We expect some of these new school contracts to be significant for this school year, we expect some of them will be small and some of them will grow even more in 'twenty five 'twenty six.
But I think the most important.
Speaker Change: Takeaway is that our school revenue, both with new contracts and existing contracts is growing very nicely and we don't see any reason why that.
Speaker Change: That wont continue this year and first.
Speaker Change: And for the subsequent school years to come.
Speaker Change: Thank you.
Speaker Change: Really good market and was there anything were.
Speaker Change: Really good at executing with schools.
Speaker Change: You're right, you're I had that I'm glad you clarified that about the.
Speaker Change: You said that it was.
Speaker Change: 'twenty school districts at least versus 15 last year that would have had $10 million.
Yes.
Speaker Change: You wanted that many.
Speaker Change: Great and what was what did you say finally I didn't quite hear the comment about non school.
Speaker Change: Did you say something about the fourth quarter for non school.
Speaker Change: Yeah. We think we think we think when we compare our non school revenue in Q4 2024 to Q3 2024, we're going to see a nice a nice pick up.
Speaker Change: That's in spite of the fact that we're we're deliberately.
Winding down our services with one of our largest with one of our formerly largest clients in the non school bus.
Business, and we significantly curtailed that business.
Speaker Change: But where we have some we have several new clients in the non school arena.
Speaker Change: And if at some point you know we can start getting more of our foreign nurses in well look out we're going to really turbocharge that.
Speaker Change: Right I was just impressed because it's not the narrative I'm hearing from a couple of the players in the just the pure.
Speaker Change: Health care nurse business.
Speaker Change: Last one for me is just any commentary around the cash picture as we.
Speaker Change: Added to this quarter in and maybe end of the.
Speaker Change: First part of next year.
Speaker Change: Sure well you know, we we expect good cash flow in Q4.
Speaker Change: We've got a few you know.
Speaker Change: Few things that sort of hurt the third quarter, but there.
Speaker Change: Several of which I believe will turn around in the fourth quarter.
Speaker Change: And we should have you know when you look at Q4 and Q1 of next year on a combined basis, we should see cash flow that you typically see from us.
Speaker Change: You know, where we got a nice start to Q4, but we'll see how the next seven weeks ago Mhm.
Speaker Change: So it's mostly just focusing on the on the DSO picture.
Speaker Change: Well, yes, you know look.
Speaker Change: When you see you know our Dsos you know a spike it's not necessarily you know the day to day clients that you you know most of our clients paid quite well, but you know from from time to time, we're going to see little spikes I don't know if you had a chance to read the K, but you know I put a little bit.
Speaker Change: Have a color.
Speaker Change: Color around the where the receivables were at 928.
Speaker Change: T T to sort of explain you know why they're probably at least $10 million higher than I think that they would otherwise be.
Speaker Change: But but we're excited about the cash flow and we think we will see you know good cash flow in Q4 and good cash flow in Q1, you know when you look at this company.
Speaker Change: Over a long period of time the cash flow is excellent right. If you look at the like the last 17 quarters, we averaged about $5 million.
Speaker Change: Cash flow per quarter.
Speaker Change: But when you look at one quarter or two quarter, sometimes you see cash flow, it's not great, but when you look at it over over a period of time, you'll see you know really strong cash flow and we expect that to continue.
Speaker Change: Okay, great and I'm talking about cash flow from operations, obviously yep Yep Yep.
Okay. Thanks again.
Speaker Change: Oh right next separated Alex Rigel at B Riley security.
Speaker Change: Thank you and good morning, gentlemen, nice quarter.
Speaker Change: Thank you. Thank you all right. Thanks, Alex.
Speaker Change: Couple of quick questions here.
Speaker Change: You know Brad from a bigger picture standpoint, as we think about 2025.
Speaker Change:
It definitely sounds like the organic growth rate and EBITDA is going to be accelerating.
Speaker Change: Any kind of macro thoughts on at what rate, we can think about EBITDA growth in 2025.
Yeah.
Speaker Change: What we try to construct and think about the business.
Speaker Change: So we're not overly reliant on the macroeconomic backdrop right and so we have multiple drivers in place to propel earnings each subsequent year.
Speaker Change: And so what I'll say with respect to potentially guidance, so kind of stick to the script, a little bit and harking back to the statement I gave you.
Five years ago, and kind of stuck with.
Speaker Change: We fully anticipate at least low double digit earnings growth from our collection of businesses over the long term.
Speaker Change: That's what we've delivered and I think it's we're going to continue to deliver.
Speaker Change: But you know as we kind of close out this year and moving into next year, we're feeling pretty good about all three of our businesses.
Speaker Change: Frankly, you know I hate to use the R word, but I think we could see a record year or two amongst them.
Speaker Change: You know because the reality is as especially from our vantage point, we strive every single year to be a record right because we're in really big markets, they're growing right and we've got some talented folks.
Speaker Change: So.
I hope that answers your question as directly as it satisfies your question in a way that's kind of consistent with what we said in the past.
Speaker Change: Definitely does and you know.
Speaker Change: Looking at your.
Speaker Change: Our practices in the past you've gotten aggressive at certain times and buying back stock you started to buy back some stock in the last few quarters.
Speaker Change: But maybe talk about sort of you are.
Interest level here and using a lot of this free cash flow here or two more.
Speaker Change: <unk> buy back shares.
Speaker Change: We bought back a lot of stock as you know I think we're pushing probably by half.
Speaker Change: Half the outstanding at this point and you know it's from.
From time to time I asked myself, you know how how much how much more is out there realistically and so I think we're in a good spot where it comes to yeah sure buybacks are always on the table, but at the same time, we're very happy to Delever.
Speaker Change: You now have no debt on the balance sheet, the opportunistic and be smart with capital I mean at the end of the day. That's how you create value right. I mean, you definitely don't want to go go out with the mindset that you know the money is burning a hole in your pocket or certainly capacity too.
Speaker Change: To draw money as you want to have a very disciplined framework for what you deploy capital when you know when the opportunity presents itself.
If you move on it so and that's.
That's a philosophy we've.
We've operated with and that's the one we're going to stick with.
Speaker Change: With the recent election this week.
Speaker Change: Any unique outcomes that.
Speaker Change: Do you think could develop that bode well for the company.
Speaker Change: Yeah, I mean, you know when you just look at the whole.
Hard and social infrastructure backdrop, I mean, it's really hard to.
Speaker Change: The size of our company, it's really hard to believe that.
Speaker Change: This isn't a positive development.
Speaker Change: Yeah, even at a bare minimum you just simply look at it.
Speaker Change: The clarity around corporate taxes et.
Central for them to even decline further.
Speaker Change: Now depleted stocks with respect to defense.
The investment in aerospace.
Speaker Change: Again, literally trillions of dollars that needs to be spent.
Speaker Change: Hardening grid infrastructure.
Speaker Change: And you know our social strike, yeah, and I think probably one of the.
Speaker Change: Greatest or are there other crisis.
Speaker Change: Arc or my career certainly.
Speaker Change: Now that I've observed is frankly, just disrepair their social infrastructures fallen into so it's hard to see you.
Speaker Change: Now.
Speaker Change: Material funds diverted from any of those areas. So I.
Speaker Change: Quite optimistic with respect to recent developments.
Speaker Change: That's great nice quarter. Thank you.
Speaker Change: Oh right as a reminder, ladies and gentlemen, you can press star one on your telephone keypad. If you have a question.
Speaker Change: Please star one on your telephone keypad, if you have a question.
Speaker Change: All right next up we have Frank Kelly.
Good afternoon gentlemen.
Speaker Change: Good quarter good quarter.
Speaker Change: I have just one one item that kind of popped up.
Speaker Change: Kind of jumps out we've covered the DSO and in the end that run away, but the.
Speaker Change: The on the P&L other expense net.
Speaker Change: For the quarter was $620000 could you shed some light on what exactly that is.
Speaker Change: Well, it's mostly interest expense right.
Speaker Change: You know the Q is out so you can certainly see the details on that in the Q, but I can just tell you that our 490000 as interest expense and a 127000 is a loss on foreign currency transactions, which tends to be pretty.
Speaker Change: You know.
Speaker Change: Haphazard in terms of you know one quarter, if the gain one quarter, it's a law some quarters that small some quarters, it's big but.
Speaker Change: 6019 breaks out to 127 is a loss on foreign currency and 492000 in interest.
Speaker Change: Right.
Speaker Change: Is the is the assumption we can make that once we have this says turnaround in cash flow, that's either a happening or will happen in the balance of this Q that we will chase down that $30 million to to kind of where you are.
Speaker Change: Frank obviously, there are other capital decisions that that will influence our debt.
Speaker Change: But if you want to just take in isolation.
Speaker Change: You know our goal and belief that we can bring our receivables down and bring our debt down and yes, the interest expense would come down.
And hopefully interest rates will come down as well right.
Speaker Change: And that that will help if interest rates come down as well.
Speaker Change: Meaningful way right, they've come down a little bit lately, but.
Speaker Change: Not in a meaningful way.
Speaker Change: Right.
Speaker Change: Alright, that's it thanks.
Frank.
Speaker Change: Okay.
Speaker Change: Oh right now at the time I'm seeing no further questions in queue. As a final reminder, everyone. You can press star one on your telephone keypad, if you'd like to get a question that is star one on your telephone keypad.
Alright, gentlemen, I'm still not seeing any questions in queue.
Speaker Change: Thank you for.
Pending <unk> third quarter conference call. We look forward toward next update in early March.
Speaker Change: And with that ladies and gentlemen that does conclude your call. You may now disconnect your lines and thank you again for joining us today.