Q4 2024 RCM Technologies Inc Earnings Call
Unknown Executive: Good morning, and thank you for joining us.
Good morning, and thank you for joining US. This is Kevin Miller, Chief Financial Officer of Orissa Technologies, I am joined today by Brad Vesey Rcm's Executive Chairman our presentation. In this call will contain forward looking statements and information contained in the forward.
Kevin Miller: This is Kevin Miller, Chief Financial Officer of RCM Technologies.
Kevin Miller: I am joined today by Brad Vizi, RCM's Executive Chairman. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates, 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.
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.
Kevin Miller: 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 file with the SEC, as well as our press releases that we issue from time to time.
For more information on our forward looking statements and the risks uncertainties and other factors to which they are subject. Please see the.
Speaker Change: Periodic reports on forms 10-K, 10-Q, and 8-K that we filed with the FCC as well as our press releases that we issue from time to time I will now turn the call over to Brad Vesey Executive Chairman to provide an overview of <unk> operating performance during the quarter.
Brad Vizi: I will now turn the call over to Brad Vizi, Executive Chairman, to provide an overview of RCM's operating performance during the quarter. Good morning, everyone. Demonstrated strong top-line momentum as many of our strategic initiatives gain traction.
Brad Vesey: Thanks, Kevin Good morning.
Speaker Change: Everyone.
Speaker Change: Yes.
Speaker Change: Strong top line momentum as many of our strategic initiatives gain traction.
Brad Vizi: No, our profitability in Q4 was a disappointment. There is a clear delineation of discrete items that materially impacted the quarter and are not indicative of earnings power. Kevin will walk you through the details to help provide a better sense of a more normalized figure that is in line with our expectations for the business. Perhaps most important, the internals of the business are in very good shape. Despite the tragic wildfires in Los Angeles and a number of school closings, we are witnessing a resumption of growth in hours and increasing activity throughout most of the business. Build the Economy is migrating through a period of increased macroeconomic uncertainty.
Speaker Change: Our profitability in Q4 was a disappointment there is a clear delineation of discrete items that materially impacted the quarter and are not indicative of earnings power.
Speaker Change: Kevin will walk you through the details to help provide a better sense of a more normalized figure that is in line with our expectations for the business.
Speaker Change: Perhaps most important the internals of the business are in very good shape.
Speaker Change: Despite the tragic wildfires in Los Angeles, and a number of school closings, we are witnessing a resumption of growth in hours and increasing activity throughout most of the business.
Speaker Change: That would be my migrating through a period of increased macroeconomic uncertainty.
Brad Vizi: We take great care in working to insulate the business from these forces.
Speaker Change: We take great care and working to insulate the business from these forces in fact, we entered 2025 for considerable optimism due to the continued effort of our devoted employee base to position the business for sector our success.
Brad Vizi: In fact, we entered 2025 with considerable optimism due to the continued effort of our devoted employee base to position the business for secular success.
Brad Vizi: I will now provide an update on the progress of each of the business units. RCM Healthcare closed 2024 on a high note that includes the resumption of growth in hours as we lap the strategic de-emphasis of a slow-paying long-term care client. Our existing school district partnerships continue to deepen with increasing client penetration and a growing number of providers. Additionally, we head into 2025 with a robust pipeline of new school districts and clients positioning us for continued expansion. Many of our longstanding contracts, which have matured into well-established business lines, are also experiencing good growth. The continued expansion within these accounts reflects both the strength of our relationships and the quality of our service.
Speaker Change: I will now provide an update on the progress of each of the business units.
RCM healthcare closed 2024 on a high note that includes the resumption of growth in hours as we lap the strategic de emphasis of a slow paying long term care claim.
Our existing school district partnerships continue to deepen with increasing client penetration and a growing number of providers.
Speaker Change: Additionally, we head into 2025 with a robust pipeline of new school districts and clients positioning us for continued expansion.
Speaker Change: Many of our long standing contracts, which have matured into well established business lines.
Speaker Change: Are also experiencing good growth.
Continued expansion within these accounts reflects both the strength of our relationships and the quality of our services.
Brad Vizi: or to our strategy with increased value we deliver to each of our strategic accounts comes commensurate share gains and increased defensibility. A key driver of our growth in K through 12 has been the surging demand for behavioral health service. Schools across the country are facing an unprecedented mental health crisis among students, with an estimated 1 in 5 children experiencing a mental health disorder, and the demand for school-based behavioral health services has continued to grow. School Districts increasingly prioritize mental and behavioral health support, leading to a surge in demand for specialized providers, including school psychologists, social workers, paraprofessionals, and behavioral therapists.
Speaker Change: Sportswear strategy with increased value, we deliver to each of our strategic accounts comes commensurate share gains and increased defensibility.
Speaker Change: A key driver of our growth in K through 12 has been the surging demand for behavioral health services.
Speaker Change: Schools across the country are facing an unprecedented mental health crisis amongst students with an estimated one in five children experiencing a mental health disorder and the demand for school will be basically behavioral health services has continued to grow.
School districts increasingly prioritized mental and behavioral health support leading to a surge in demand for specialized providers, including schools school psychologists social workers for our professionals and behavioral therapist.
Brad Vizi: As a result, our ability to rapidly deploy highly qualified professionals has positioned us as a leader in addressing this critical need.
Speaker Change: As a result, our ability to rapidly deploy highly qualified professionals has positioned us as a leader in addressing this critical need.
Brad Vizi: We are also excited about the strong performance of our corrections clients. We demonstrated impressive growth in 2024.
Speaker Change: We are also excited about the strong performance of our corrections clients.
Speaker Change: Demonstrated impressive growth in 2024.
Brad Vizi: This sector remains a key area of opportunity, and we anticipate further expansion in the year ahead. Consistent with the strategy we employ throughout the company, we aim to benefit from the success of our initial accounts and leverage our learnings to tailor solutions that will allow us to further penetrate the market segment.
Speaker Change: This sector remains a key area of opportunity and we anticipate further expansion in the year ahead.
Speaker Change: Consistent with the strategy, we employ throughout the company, we aim to benefit from the success of our initial accounts and leverage our learnings to tailor solutions that will allow us to further penetrate the market segment.
Brad Vizi: As we move into 2025, we remain committed to smart growth, operational excellence, and delivering unparalleled service to our clients. We look forward to capitalizing on the exciting opportunities ahead and building on the strong foundation we have established. In Q4, financial indicators for our Life Sciences Data and Solutions Division continued to show improvement as we delivered continued positive growth. of our managed service contract portfolio. Before, revenue projections were in line with our expectations, exceeding GP and NOI targets for the quarter. Fourth quarter managed services growth also reflects further cost savings measures, including offshore delivery and productivity tools.
Speaker Change: As we move into 2025, we remain committed to smart growth operational excellence and delivering unparalleled service to our clients.
Speaker Change: We look forward to capitalizing on the exciting opportunities ahead and building on the strong foundation, we have established.
Speaker Change: And Q4 financial indicators for our life Sciences data and solutions Division continued to show improvement as we delivered continued cost of growth.
Of our managed service contract portfolio.
Speaker Change: Before revenue projections were in line with our expectations exceeding G P and NOI targets for the quarter.
Speaker Change: Fourth quarter managed services growth also reflects further cost savings measures, including offshore delivery and productivity tools.
Brad Vizi: In our HCM division, we continue to exceed quarterly quotas by utilizing advanced quality improvement techniques and creation of support utilities. We continue to deliver successfully on our managed solution initiatives and secured three new clients. Furthermore, RCM was awarded a multi-year Renewals for three of our managed service engagements demonstrating client loyalty and consistent quality delivery. Overall, our Q4 performance reflects the efforts the division has invested in securing long-term extended managed services contracts.
Speaker Change: And our HCM Division, we continued to exceed quarterly quotas by utilizing advanced quality improvement techniques and creation of support utilities.
Speaker Change: We continue to deliver successfully on our managed solution initiatives and secured three new clients.
Speaker Change: Furthermore, RCM was awarded a multiyear.
Speaker Change: Renewals for three of our managed served service engagements demonstrating client loyalty and consistent quality delivery.
Speaker Change: Overall, our Q4 performance reflects the efforts the division has invested in securing long term extended managed services contracts.
Brad Vizi: 2025, we'll see a dramatic shift in our primary market. Traditional IT services of business analysis and application development will be replaced by Deployment of AI and ML tools that support key processes. Automation. We have positioned ourselves to assist our clients to adopt these new paradigms and create opportunities for competitive advantage.
Speaker Change: 125, we will see a dramatic shift in our primary markets.
Speaker Change: Traditional it services business analysis analysis and application development will be replaced by <unk>.
Speaker Change: Deployment of AI and ml tools that support key process.
Speaker Change: Automation.
Speaker Change: We have positioned ourselves to assist our clients to adopt these new paradigms and create opportunities for competitive advantage.
Brad Vizi: Transitioning to engineering, starting with energy services. Demonstrating robust annual growth, 2024 was another year of strong performance. Energy Services' customer-oriented mindset was key to promote this growth and to meet the requirements of the power and utility industry. The continuation of professional high-quality service execution was well-received by major energy utilities in North America, resulting in further negotiations for upcoming large-scale projects. These include the grid modernization of the U.S. and increased demand for data center developments serving as a rapidly emerging driver of growth for RCM.
Speaker Change: Transitioning to engineering, starting with energy services.
Speaker Change: Demonstrating robust annual growth 'twenty 'twenty four it was another year of.
Strong performers.
Speaker Change: Energy services customer oriented mindset was key to promote this growth and to meet the requirements of the power and utility industry.
Speaker Change: The continuation of professional high quality service execution was well received by major.
Speaker Change: Energy utilities in North America, resulting in further negotiations for upcoming large scale projects.
Speaker Change: These include the grid modernization of the U S and increased demand for data center developments, serving as a rapidly emerging driver of growth for RCM.
Brad Vizi: Additionally, Energy Services EPC Group. developed a teaming agreement with a major construction company for executing large upcoming turnkey projects.
Speaker Change: Additionally, energy services EPC group.
Speaker Change: Developed a teaming agreement with a major construction company for executing large upcoming turnkey projects.
Brad Vizi: RCM Europe continues to demonstrate strong progress. With a third EPC project awarded and several new projects in negotiation, we are looking forward to our German office providing a healthy contribution in 2025. We are particularly pleased with the quality of the talent we have been able to secure in a talent constrained environment. RCM's reputation as a thought leader and significant contribution to internationally recognized projects is paying dividends. Meticulous care and scaling up our core team of professionals helps ensure solid project execution and lays the foundation for RCM to become a long-term trusted partner for Europe's energy transition as we add a second large utility in Germany to our world-class client list.
Speaker Change: RCM Europe continues to demonstrate strong progress.
Speaker Change: With a third EPC project awarded several new projects in negotiation, we are looking forward to our German office, providing a healthy contribution in 2025.
Speaker Change: We are particularly pleased with the quality of the talent, we have been able to secure an Italian constrained environment.
Speaker Change: Rcm's reputation as a thought leader and significant contribution to internationally recognized project is projects is paying dividends.
Speaker Change: Particularly care and scaling up our core team of professionals helps ensure solid project execution and lays the foundation for RCM to become a long term trusted partner for Europe's energy transition as we add a second large utility in Germany to a world class client list.
Brad Vizi: Energy Services continue to contribute with active leadership roles and major technical associations such as IEEE-PES and SF6 and Alternatives Coalition hosted by NEMA. The team will participate in the Cigar Colloquium 2025 and will be a sponsor and main contributor to the IEEE PES Substation Meeting in New Orleans in May.
Energy services continued to contribute with active leadership roles in major technical associations, such as eye Tripoli P S and as such sex and alternatives coalition hosted by Nemer.
Speaker Change: The team will participate in the Super Colloquy on 2025 and will be a sponsor and main contributor to the eye Triple H P. S substation meeting in New Orleans in May.
Brad Vizi: In Process and Industrial, the RCM Thermokinetics Office has successfully designed and launched a new plant expansion program primarily focused on the ethanol industry. The next campaign. has already resulted in an equipment order for $3.5 million. The project expands a plant from 85 million gallons per year to 100 million gallons per year. team has received several quality leads from marketing and client outreach efforts. The office expects two to three additional engineering orders in Q1 and Q2 for next project. We believe the 12 to 18 month ROI, our solution targets for clients will result in additional equipment orders following our front end engineering efforts.
Speaker Change: And process and industrial the RCM thermal kinetics office has successfully designed and launched a new plant expansion program, primarily focused on the ethanol industry.
Speaker Change: The next campaign.
Speaker Change: Has already resulted in an equipment order for $3 $5 billion.
Speaker Change: The project expands a plant from 85 million gallons per year to 100 million gallons per year.
Speaker Change: The team has received several quality leads from marketing and client outreach efforts.
Speaker Change: The office expects two to three additional engineering orders in Q1 and Q2 for next projects.
Speaker Change: We believe the 12 to 18 month ROI our solution targets for clients will result in additional equipment orders following our front end engineering efforts.
Brad Vizi: Also of note, Thermokinetics has completed an engineering order to develop novel solution chemistry for a customer-planned lithium facility in the U.S. A several-month pilot campaign at the TK Test Center is expected to begin in Q1, utilizing brine extracted from U.S.-based wells. Equipment for this facility is scheduled for purchase in late 2025. This project is a great example of the strength the Thermal Kinetics Test Center brings to the team. We believe the ability to prove the simulated chemistry greatly improved the likelihood of our selection as a process engineering lead for the project. The test center also concluded a challenging evaporation test for a U.S.-based client for an expansion project in Mexico.
Speaker Change: Also of note thermal kinetics has completed an engineered order to develops novel solution chemistry for a customer plant lithium facility in the U S.
Speaker Change: A several month pop pilot campaign at the Teekay Test Center is expected to begin in Q1, utilizing Brian extracted from the U S base wells.
Speaker Change: Equipment for this facility is scheduled for purchase in late 2025.
Speaker Change: This project is a great example of the strength of thermal kinetics Test center brings to the team.
Speaker Change: We believe the ability to prove the stimulated chemistry greatly improved the likelihood of our selection as a process engineering lead for the project.
Speaker Change: The test Center also concluded a challenging evaporation test for a U S based clients foreign expansion project in Mexico.
Brad Vizi: This is another example of utilizing test capabilities as a route to market. A $7.5 million equipment order associated with this test is planned for early Q3.
Speaker Change: This is another example of utilizing testing capabilities as a as a route to market.
Speaker Change: The $7 5 million of our equipment order associated with this test is planned for early Q3.
Brad Vizi: Thermal Kinetics is continuing efforts to finalize an expanded partnership agreement with a U.S.-based client. TK has been the exclusive vendor utilized for the past seven years to support this customer's proprietary CO2 capture and conversion plant. team remains focused on continuation of their emergence as a market leader in responsible and sustainable chemical process design.
Speaker Change: Thermal kinetics is continuing efforts to finalize an expanded partnership agreement with a U S based clients.
Speaker Change: Teekay has been an exclusive vendor utilized for the past seven years to support this customer's proprietary C O to capture and conversion plants.
Speaker Change: The team remains focused on continuation of their emergence as a market leader in responsible and sustainable chemical process design.
Brad Vizi: The Aerospace and Defense Group continued to win business on new programs with existing and new clients in Q4 2024, which allowed us to consistently grow our resource base.
Speaker Change: The aerospace and defense group continue to win business on new programs with existing and new clients in Q4, 'twenty 'twenty, four which allowed us to consistently grow grow our resource base.
Brad Vizi: Headcount has increased an additional 20% in Q4 2024 over Q3 2024, which was already a significant increase over the first half of 2024. As projected, we have realized a healthy increase in EBITDA for 2024 compared to 2023, and the weekly run rate continued to increase an additional $65,000 in Q4, which amounted to a top line increase of $1.3 million quarter over quarter. As previously mentioned, the RFIs, RFQs, and MSAs that were finalized in 2024 have allowed us to realize an aggressive increase in headcount, revenue, and profit, which we expect to continue to increase through 2025.
Speaker Change: Headcount has increased an additional 20% in Q4 2024 over Q3, 'twenty 'twenty, four which was already a significant increase over the first half of 2024.
Speaker Change: As projected we.
Speaker Change: We have realized a healthy increase in EBITDA for 2024 compared to 2023 and the weekly run rate continued to increase an additional $65000 in Q4, which amounted to a topline increase of $1.3 million quarter over quarter.
Speaker Change: As previously mentioned the RFID RF queues and Msas that were finalized in 2024, I'm allowed us to realize an aggressive increase in head count revenue and profit, which we expect to continue to increase through 12 25.
Brad Vizi: Our vertical of customers and technology innovator customers doing business with the U.S. government and tier ones has reinforced our expansion across air, land, sea, space, and cyber. We have also experienced growth throughout new design programs in engineering, as well as established long-term supported products in manufacturing with increased aftermarket demands as well.
Speaker Change: Our vertical with customers and technology.
Speaker Change: And the bigger customers doing business with the U S government and tier ones has reinforced our expansion across air land Sea space and cyber.
Speaker Change: We have also experienced growth throughout new design programs and engineering as well as establish long term supported product products and manufacturing with increased aftermarket demands as well.
Brad Vizi: All anticipated requirements throughout our customer base in Q4 2024 have now been surpassed as we begin 2025 in a much better place than years past. The recruitment team continues to build trusted valued relationships throughout the client and candidate base, which has allowed this team to exceed all hiring expectations in 2024. We continue to embark on new tools and technologies to maximize the reach and efficiencies of this One of our newest awards have just begun to gain traction, and we expect these new multi-year contracts to drive and expand our model-based expertise, software, systems, logistics, avionics, and aftermarket expertise throughout 2025 and 2026.
Speaker Change: Yeah.
Speaker Change: All anticipated requirements throughout our customer base in Q4, 'twenty 'twenty four have now been surpassed as we begin 2025 and a much better place than years past.
Speaker Change: The recruitment team continues to build trusted Val.
Speaker Change: Now you'd relationships throughout the client Fiat and candidate base.
Speaker Change: Which has allowed this team to exceed all hiring expectations in 2024.
Speaker Change: We continue to embark on new tools and technologies to maximize the reach and efficiencies of this team.
Speaker Change: One of our newest awards have just begun to gain traction and we expect these new multi year contracts to drive <unk> and.
And expand our model based expertise software systems logistics avionics and aftermarket expertise throughout 2025 and 2026.
Brad Vizi: We expect to continue to grow with all our aerospace and defense clients in 2025 and beyond, as we are the cost effective, flexible, and high quality workforce solution that is needed in this environment.
Speaker Change: We expect to continue to grow with all our aerospace and defense clients in 2025 and beyond as we are the cost effective flexible and high quality workforce solution that is needed in this environment.
Brad Vizi: We look forward to solidifying additional clients and program wins in 2025.
Speaker Change: We look forward to solidify additional clients and program wins in 2025.
Kevin Miller: Now I will return the call to Kevin to discuss the Q4 2024 financial results in more detail. Thank you, Brad. Regarding our consolidated results, consolidated gross profit for fourth quarter of 2024 was $21.6 million flat as compared to the fourth quarter of 2023. Consolidated gross profit for fiscal 2024 was $79.8 million compared to $76.7 million for fiscal 2023. Adjusted EBITDA for the fourth quarter was $6.3 million as compared to $8.9 for the fourth quarter of 2023. Adjusted EBITDA for fiscal 2024 was $25.9 million compared to $26.6 million for fiscal 2023. Adjusted EPS was $2.03 for fiscal 2024 as compared to $2.04 for fiscal 2023.
Speaker Change: Now I will return the call to Kevin to discuss the Q4 'twenty 'twenty four financial results in more detail.
Kevin: Thank you Brett regarding our consolidated results.
Kevin: Holiday to gross profit for fourth quarter of 2024. It was 21 6 million flat as compared to the fourth quarter of 2023.
Gross profit for fiscal 'twenty 'twenty, four was $79 8 million compared to $76 7 million for fiscal 2023, adjusted EBITDA for the fourth quarter was $6 3 million as compared to $8 9 million for the fourth quarter of 2023, adjusted EBITDA for fiscal 2024.
It was $25 nine compared to $26 6 million for fiscal 2023, adjusted EPS was $2.03 for fiscal 'twenty 'twenty four as compared to $2.04 for fiscal 2023.
Kevin Miller: During Q4-24, we had several material expenses move in the wrong direction. In our engineering group, a significant industrial process equipment order was abruptly canceled midway through the project. Also, our technical publications group experienced significant rework on a large project with one of our aerospace clients. These two items caused an approximate 900k reduction in gross profit in Q4. Additionally, our self-insured medical plan had abnormally high medical costs that increased SG&A expenses by about $1.25 million from what we would normally expect.
Kevin: During Q4 'twenty four we had several material expenses move in the wrong direction.
Kevin: And our engineering group significant industrial process equipment order was abruptly cancelled midway through the project also our technical publications group experienced significant rework on a large project with one of our aerospace clients.
Kevin: Two items caused an approximate 900 K reduction in gross profit in Q4.
Kevin: Additionally, our self insured medical plan had abnormally high medical costs and increased SG&A expenses by about 1.25 million from what we would normally expect we settled a class action lawsuit regarding California wages in 2023, but the judge denied the initial surge.
Kevin Miller: We settled a class action lawsuit regarding California wages in 2023, but the judge denied the initial settlement in 2024 and sent it back to the attorneys. We had to go back to mediation. We now have an approved settlement agreement, but it added about $450,000 in SG&A expenses between the increased settlement costs and the additional legal costs. As for segment performance in the fourth quarter of 2024 in engineering, gross profit for the fourth quarter of 2024 was $5.2 million compared to $6.1 million for the fourth quarter of 2023. Gross profit for fiscal 2024 was $22.5 million compared to $20.6 million for fiscal 2025.
Kevin: In 2024 and send it back to the attorneys we had to go back to aviation. We now have an approved settlement agreement.
Kevin: It added about 450, K and SG&A expenses between increased settlement costs and the additional legal fees.
Kevin: As for segment performance in the fourth quarter of 2024 and engineering gross profit for the fourth quarter of 2024 was $5 2 million compared to $6 1 million for the fourth quarter of 2023 gross profit for fiscal 2024 was 'twenty was $22 5 million.
Kevin: Compared to $20 6 million for fiscal 2023 gross margin for the fourth quarter of 2024 was 19, 7% compared to 27.0% for the fourth quarter of 2023.
Kevin Miller: Gross margin for the fourth quarter of 2024 was 19.7% compared to 27.0% for the fourth quarter of 2023. Gross margin for fiscal 2024 was 23.4% compared to 24.3% for fiscal 2023. Gross margin in the fourth quarter of 2024 was very low, primarily due to the two expenses mentioned earlier, but also because we had a high mixed shift of lower margin work in Q4.
Kevin: Gross margin for fiscal 2024 was 43, 4% compared to 24, 3% for fiscal 2023 gross margin in the fourth quarter of 2024 was very low primarily due to the two expenses.
Kevin: Mentioned earlier, but also because we had a high mix shift of lower margin work in Q4, our engineering gross margins can be very volatile, but we generally expect them to land between 24.0% and 28.0%.
Kevin Miller: Our engineering gross margins can be very volatile, but we generally expect them to land between 24.0% and 28.0%. In IT, Life Sciences, and Data Solutions, gross profit for the fourth quarter of 2024 was $3.9 million, compared to $4.5 million for the fourth quarter of 2023. Gross profit for fiscal 2024 was $14.7 million, compared to $16.2 million for fiscal 2023. Gross margin for the fourth quarter of 2024 was 40.0%, compared to 38.7% for the fourth quarter of 2023. Gross margin for fiscal 2024 was 37.5%, as compared to 38.2% for fiscal 2023.
Kevin: In I T Lifesciences and data solutions gross profit for the fourth quarter of 2024 was $3 9 million compared to $4 5 million for the fourth quarter of 2023 gross profit versus fiscal 2024 was $14 7 million compared to $16 2 million for fiscal 2023 gross.
Kevin: Margin for the fourth quarter of 2024 was 40.0% compared with 38, 7% for the fourth quarter of 2023 gross margin for fiscal 2024 was 37, 5% as compared to 38, 2% for fiscal 2023 we generally expect I T life Sciences in Davis.
Kevin Miller: We generally expect IT, Life Sciences, and Data Solutions gross margins between 36% and 41%. In healthcare, gross profit for the fourth quarter of 2024 was $12.5 million, compared to $11.0 million for the fourth quarter of 2023. Gross profit for fiscal 2024 was $42.5 million, compared to $39.9 million for fiscal 2023. Gross margin for the fourth quarter of 2024 was 30.0%, compared to 29.8% for the fourth quarter of 2023. Gross margin for fiscal 2024 was 29.8%, as compared to 29.3% for fiscal 2023.
Kevin: Solutions gross margins between 36% and 40%.
In health care gross profit for the fourth quarter of 2024 was $12 5 million compared to 11.0 million for the fourth quarter of 2023.
Kevin: Gross profit for fiscal 2024 was $42 5 million compared to $39 9 million for fiscal 2023.
Kevin: Gross margin for the fourth quarter of 2024 was 30.0% compared to 29, 8% for the fourth quarter of 2023 gross margin for fiscal 2024 was 29, 8% as compared to 29, 3% for fiscal 2023, we generally expect health care.
Kevin Miller: We generally expect health care gross margins to be between 28 and 30%. School revenue for the fourth quarter of 2024 was $34.9 million, compared to $29.8 million for the fourth quarter of 2023. Non-school revenue for the fourth quarter of 2024 was $6.2 million, compared to $6.9 million for the fourth quarter of 2023.
Those margins to be between 28 and 30%.
School revenue for the fourth quarter of 2024 was $34 9 million compared to $29 8 million for the fourth quarter of 2023 non school revenue for the fourth quarter of 2024 was $6 2 million compared to $6 9 million for the fourth quarter of 2023, However, if we remove.
Kevin Miller: However, if we remove a large long-term care group where we deliberately reduce services, revenue would be $5.6 million in 2024 versus $5.5 million in the fourth quarter of 2023.
Kevin: A large long term care group, where we deliberately reduced services revenue would be $5 6 million in 2024 versus $5 5 million in the fourth quarter of 2023.
Kevin Miller: regarding our trade accounts receivable. We made some headway this quarter, going from 114 DSOs for the third quarter of 2023 to 92 DSOs for the fourth quarter of 2024. We had two balances at the end of fiscal 2024, both of which were cleaned up in the first quarter of fiscal 2025. First, a large school client stopped payment early in the fourth quarter due to administrative issues unrelated to the company. The company estimates that this school client's December 28, 2024 accounts receivable balance exceeded normalized levels by about $6 million. An IT Life Sciences Data and Solutions client stopped making payments while we negotiated change orders and a two-year contract extension.
Kevin: Regarding our trade accounts receivables, we made some headway this quarter going from 114 Dsos for the third quarter of 2023 to 92 Dsos for the fourth quarter of 2024, we had two balances at the end of fiscal 2024, both of which were cleaned up in the firm.
Kevin: First quarter of fiscal 2025.
First a large school clients stopped payment early in the fourth quarter due to administrative issues unrelated to the company. The company estimates that the school clients December 28, 2024 accounts receivable balance exceeded normalized levels by about $6 million and I'd see life Sciences data and solutions.
Kevin: It stopped making payments why we'd negotiating change orders and a two year contract extension the company estimates that the clients 28 at December 28, 2024 accounts receivable balance.
Kevin Miller: The company estimates that the client's 28, excuse me, December 28th, 2024 accounts receivable balance exceeded normalized levels by approximately 3.8 million.
Kevin: Ceded normalized levels by approximately $3 8 million or goal for Dsos is to get to 80 at the end of fiscal 2025.
Kevin Miller: Our goal for DSOs is to get to under 80 by the end of fiscal 2025. Our goal for all quarters in fiscal 2025 is at least double-digit growth on adjusted EBITDA, and we are very optimistic about 2025.
Kevin: Go for all quarters in fiscal 2025 is at least double digit growth on a dusty on adjusted EBITDA and we are very optimistic about 2025.
Kevin Miller: We'll give more guidance as the year progresses and we'll have another call in May, which is not too far away.
Kevin: We'll give more guidance as the year progresses.
Kevin: And we'll have another call in May which is not too far away.
Unknown Executive: This concludes our prepared remarks. At this time, we will open the call for questions. And with that, ladies and gentlemen, if you do have any questions, please press star one on your telephone keypad. Once again, that's star one on your telephone keypad to join the question queue. All right, ladies and gentlemen, just again, that's star one on your telephone keypad if you wish to join the queue. Star 1 on your telephone keypad if you wish to join the queue.
Kevin: This concludes our prepared remarks at this time, we will open the call for questions.
Kevin: And with that ladies and gentlemen, if you do have any question. Please press star one on your telephone keypad.
Kevin: Once again Thats star one on your telephone keypad.
Kevin: And the question queue.
Kevin: All right, ladies and gentlemen, just again that's star one on your telephone keypad, if you wish to join the queue.
Kevin: Star one on your telephone keypad, if you wish to join the queue.
William Duberson: All right, we do have a William Duberson, your line is now open. Hey guys Hey, hey, nice to talk to you again. And thanks for all that detail on the extra costs.
Speaker Change: All right, we do have a William Duberstein. Your line is now open.
William Duberstein: Hey, guys.
Nate: Hey, Nate.
Nate: Talk to you again and thanks for all that detail on the.
Nate: The extra costs.
Kevin Miller: You went through a bunch of line items, and I might have missed this, but it looks like you're Didn't was any of that realized in the tax rate because it looks like the tax rate was over 50% this quarter. and I'm not there. Yeah, sure. So, Bill, the tax rate, obviously, in the fourth quarter is a function of the tax rate for the year, right? So, you really can't look at the tax rate in the quarter. You need to look at the effective tax rate, you know, for the company overall. And the effective tax rate is 34.0%.
Nate:
Speaker Change: You went through a bunch of line items and I might've missed this but it looks like your.
Speaker Change: Did it was any of that realized in the tax rate because it looks like the tax rate was.
Speaker Change: Over 50.
Speaker Change: 50% this quarter.
And.
Speaker Change: Yeah sure so bill the tax rate, obviously in the fourth quarter.
Speaker Change: He is a function of the tax rate for the year right.
Speaker Change: So you really you really can't look at the tax rate.
Speaker Change: In the quarter you need to look at the effective tax rate you know for the company overall.
Kevin Miller: You know, when we file the 10K later, you'll see a rate reconciliation. Certainly, if you have any questions on it, you know, feel free to give me a call. But I'll just say that the 34.0% effective tax rate is very, very high for us and very abnormal. And what is driving a big chunk of that is, you know, permanent differences having to do with truing up deferred tax liabilities, right? So, it doesn't impact your cash taxes, but it impacts your gap taxes. So about 5% of that is stuff that we don't normally see. So the upshot of it is, absent anything I'm not aware of, we should not see a tax rate anywhere near 34% next year, an effective tax rate.
Speaker Change: And the effective tax rate is 34.0% you know when we filed the 10-K later, you'll see a rate reconciliation.
Speaker Change: If you have any questions on it.
Speaker Change: Feel free to give me a call, but I'll just say that the 34.0 effective tax rate is very very high for us and very abnormal.
Speaker Change: And what what is driving a big chunk of that is you know permanent.
Speaker Change: Permanent differences, having to do with.
Speaker Change: Truing up our deferred tax liabilities.
Speaker Change: So it doesn't impact your cash taxes, but it impacts your GAAP taxes.
Speaker Change: So about 5% of that is stuff that we don't normally.
Speaker Change: We don't normally see.
Speaker Change: So the upshot of it is with.
Speaker Change: Absent anything I'm not aware of.
Speaker Change: We should not see a tax rate anywhere near 34% next year, an effective tax rate it should be.
Kevin Miller: It should be well below 30%.
Kevin Miller: Do you have a range of what a so-called normal tax rate might be going for? Sure, sure. I would say normal, a range would be 26 to 29 percent, and probably, you know, the midpoint of that is probably a pretty good guess. The more pre-tax we make, obviously that rate is going to come down some because your permanent differences have a lower impact on your rate. But in a normal year, we don't typically have big, big permanent differences. So, you know, if you ignore permanent differences altogether, our rates are around 26.5%. But, you know, if we were above 27.5% next year, it would surprise me.
Speaker Change: Well below 30%.
Speaker Change: Do you have a range of what our so called normal tax rate might sure sure I would say normal or a.
Speaker Change: Our range would be 26% to 29%.
Speaker Change: And probably you know the mid point of that is probably a pretty good guess the more we make that the you know the more pretax we make you know obviously that rate is going to come down some.
Speaker Change: Because your permanent differences have a have a lower impact on your rate.
Speaker Change: But you know in a normal year, we don't typically have big big permanent differences.
So if you ignore Permian differences altogether, our rates around 26, 5%, but you know if we were above 27 and a half next year. It would surprise me.
William Duberson: on an effective rate. Catch it. Great. Yeah, thanks for that. and for the.
Speaker Change: On an effective tax rate basis.
Speaker Change: Great Yeah. Thanks, Thanks for that.
Speaker Change: Hmm.
Kevin Miller: The specific cost on engineering, I think he called out. Order being $900,000. the 900,000 total for the two items that occurred. Right. And that's an increase to direct costs, essentially. Right, you know, it's a combination of it's a combination of increased direct costs and essentially lost revenue that we that we expected to get in the fourth quarter. So you wind up with a little bit lower revenue and higher costs. And, you know, the end result is about 900,000 in, you know, in lower gross profit than we would have had absent those two items. Right. Um, so sorry, was one item resulting in lower revenue and one item?
Speaker Change: And then for the.
Speaker Change: The specific cost on engineering, I think you called out.
Speaker Change: Hmm.
Speaker Change: In order it means 900000.
Speaker Change: The 900000.
Speaker Change: Total for the two for the two <unk>.
Speaker Change: Items that occurred.
Speaker Change: Right and that's an increase to direct cost essentially.
Speaker Change: Right.
Speaker Change: It's a combination of increased direct cost and essentially loss revenue that we that we expected to get in the fourth quarter.
Speaker Change: So you wind up with a little bit lower revenue and higher costs and you know the unresolved is about 900000 in.
Speaker Change: In lower gross profit than we would have had absent those two items.
Speaker Change: Right.
So it was one item, resulting in lower revenue and one item increase.
Kevin Miller: They're both resulting in lower revenue. Obviously, the canceled order reduced revenue. And then when we have people doing rework, they're essentially working hours that would normally be billable and would normally generate revenue. And they're not generating any revenue because we're doing work for free. Right. So it's in that case, it's it's it's you're losing revenue on people that normally would be generating revenue. So it's it's both right, you have higher, you just and you wind up with a real, you know, crush to your gross profit dollars and your gross margin. and the client doesn't recompense you for the work done to that before the project was canceled.
Speaker Change: Increased cost there.
No they're both they're both resulting in lower revenue Oh, you know obviously the canceled water reduce revenue and then you know when we have people doing rework there essentially you know working what hours that would normally be billable and would normally generate revenue when you're not generating any revenue because were doing work for free essentially.
Speaker Change: Right. So it's in that case, it's it's it's youre, losing revenue on people that normally would be generating revenue. So it's it's both right you have higher <unk>.
Speaker Change: He just and you wind up with a real cross.
Speaker Change: Crush to your gross profit dollars and gross margin.
Speaker Change: And the client doesn't recompense you for the work done.
Speaker Change: Uh huh.
Speaker Change: Before the call.
Kevin Miller: Well, yes, but you know, we We certainly cut it off, but the way the contract works, you know, we still lose significant revenue by canceling the order midstream. So, you know, um, okay. You know, had we completed it, you know, we would have delivered equipment that we would and we would have made a lot more money on it than having a canceled order.
Speaker Change: Who canceled.
Speaker Change: Well, yes, but you know we.
Speaker Change: We certainly.
Speaker Change: Cut it off but the way the contract works you know, we still lose significant revenue by by canceling the water midstream.
Speaker Change: So you know.
Speaker Change: Okay.
Speaker Change: Had we completed it.
Speaker Change: <unk> delivered equipment that we would and we would have made a lot more money on it than having a canceled order.
William Duberson: Right, and I don't know if you can go into these details, but did that canceled order have anything to do with sort of the change in administration? the election happened early in November. I was just wondering if that was the result of a change. No, no, no, there's no political factors there. It's just a nuance with a particular client.
Speaker Change: Right and I don't know if you can go into these details, but did that canceled order have anything to do with sort of the change in administration.
Speaker Change:
Speaker Change: Obviously the election happened drilling November I was just wondering if either that no no no no. There's no political factors there. It's just a nuance with a particular client.
Kevin Miller: Okay, and I guess that led me to wonder if there's any sort of from maybe like Doge or any sort of headlines that are out there. RCM Tech, Unknown Executive, Frank Kelly, Unknown Executive, Frank Kelly, Unknown Executive, No direct, you know, nothing direct. I mean, I think DOGE can potentially, you know, have some impact on the IT environment in general, not talking about RCM. I mean, we don't do well, most of our work for government is working as a subcontractor. And most of that work is in the aerospace industry. And, you know, we don't, as of today, we don't expect, you know, any major impact.
Okay, and I guess that led me to wonder if there's any sort of.
Speaker Change: The effect, you're seeing from maybe like does or any sort of.
Speaker Change: The headlines.
Speaker Change: The headlines that are out there.
Speaker Change: Considering stomach.
Speaker Change: Clients are good.
Our neighbour seed money from government agencies.
Speaker Change: No no direct.
Speaker Change: You know nothing direct.
Speaker Change: I mean, I think doge can potentially have some impact on the environment in general not not talking not talking about RCM I mean, we don't do well, we we most of our work for government is working working as a subcontractor and most of that work is in the aerospace industry and you know we don't.
Brad Vizi: Certainly, you know, if a lot of IT workers are getting laid off. because of DOGE, that can impact the IT environment in general, but we don't see any direct link as of today to any major impact on RCM, and I'm sure Brad probably could expand on this, but that's what we're seeing today. Yeah, no, I'm just, really quickly, I just echo Kevin's sentiments. But the other thing I see playing out, right, you know, we seem to generally be insulated from, well, when you start to think about the services business, and, you know, particularly ours, you know, the times where you do have blips, and, you know, you know, material reductions in workforce, inevitably, they overshoot, right.
Speaker Change: As of today, we don't expect any major impact certainly.
Speaker Change: You know if a lot of I T workers are getting laid off.
Speaker Change: Because of Doge.
Speaker Change: You know that that can impact the environment in general, but like we don't see any direct link as of today to any major impact on what I see in him and I'm sure Brad probably can expand on this but.
Speaker Change: You know that that's what we're seeing today.
Speaker Change: Yeah.
Speaker Change: No I was just.
Speaker Change: Really quick I, just echo Kevin's sentiments.
Speaker Change: The other thing I see playing out right.
Speaker Change: We think generally insulated from when you start to think about the services business and particularly ours.
Speaker Change: Times, where you do have blips.
And you know.
Speaker Change: Material reductions in workforce.
Brad Vizi: And so, you know, the first ones that actually come back tend to be, you know, contractors like us. So, you know, so as I see all this, you know, playing out just like, you know, you do. and you know, we're, again, you know, managing the business every single day, you know, to continue to move the ball on the field. You know, and, and we're not really seeing an impact. You know, The more I see this play out, the more I think to myself, at some point, you know, these reductions in workforce, you know, when are we going to be on the right end of overshooting?
Speaker Change: Inevitably they overshoot right and so the first ones that actually come back from the big contractors like us right.
Speaker Change: So you know as I see all of us.
Speaker Change: Playing out just like you do.
Speaker Change: And you know, we're again managing that business every single day.
Speaker Change: Continuing with the ball on the field.
Speaker Change: You know and we're not really seeing an impact yes.
Speaker Change: The more I see this play out the more I think myself at some point.
Speaker Change: These reductions in workforce.
William Duberson: Right? So, in other words, these government reductions, bringing people back, right? Those people that you just let go, oftentimes they are dispersed into the broader economy, and they find different jobs, and you have a gap you have to fill pretty quickly. So, you know, it's too early, and there's too much uncertainty with respect for me to pound the table either way. But, you know, it hasn't been an impact today, and we're optimistic that at some point, it may actually be a tailwind. Okay, that's, that's, that's encouraging.
Speaker Change: When are we going to be on the right end of overshooting right.
Speaker Change: So in other words you know.
Speaker Change: These government reductions.
Speaker Change: Bringing people back right.
Speaker Change: Those people that you just like go oftentimes day Oh they are.
Speaker Change: They're dispersed into the broader economy at least five different jobs and you have a gap to fill pretty quickly. So.
Speaker Change: I, it's too early and there's just too much uncertainty with respect for me to come on the table either way, but no it.
Speaker Change: It hasn't been an impact today in and we're optimistic that at some point it may actually be a tailwind.
Speaker Change: Okay.
William Duberson: And sorry, my final thing, it looks like. Looks like absent those one time charges, you guys would have grown operating a little over 12%. So that's... much better.
Speaker Change: That's encouraging.
Speaker Change: And sorry, my final thing it looks like.
Speaker Change: It looks like absent those onetime charges you guys would've grown operating income a little over 12%. So that's obviously much better and did you say you were looking towards.
William Duberson: And did you say you were looking toward double-digit bottom line growth every quarter or for the full year. Well, at least, at least, yeah, at least that for the full year, right, because we had a disappointing fourth quarter. But, you know, we, we, we strive to grow are adjusted quarter over quarter, every quarter, in the low double digits. That's our goal, okay, is to grow at least in the low double digits. and we don't see any reason why we can't accomplish that in 2025. I mean, Q4 2025 is sort of a long ways away. You know, I don't think we're going to see sort of the hockey stick, you know, in numbers that we saw in 2023 and which, you know, we thought we might see in 2024 that we didn't see.
Speaker Change: Double digit bottom line growth every quarter or for the full year.
Speaker Change: Well.
Speaker Change: At least at least yeah at least that for the full year right. Because we had a disappointing fourth quarter, but you know we strive to grow.
Speaker Change: Our adjusted EBITDA quarter over quarter every quarter in the low double digits. That's our goal is to grow in the at least in the low double digits.
Speaker Change: And we don't see any reason why we can't accomplish that in in 2025.
Speaker Change: Q4, 2025 is sort of a long ways away.
Speaker Change: You know I don't think we're going to see sort of the hockey stick you know in <unk>.
In numbers that we saw in 2023.
Speaker Change: And which you know we thought we might see in 2024 that we didn't see.
Kevin Miller: But we're, our expectation as a company is to grow adjusted even to low double digits every quarter and if we don't, you know, then it's a failed quarter, frankly. And that, you know, that's how we bring it up on the scorecard. If we don't hit those numbers, then, you know, it's a failed quarter. So, you know, and as we look out at 2025, we're optimistic. and we don't see any reason why we can't hit our goals. So, you know, I'll just leave it at that.
Speaker Change: But where we're.
Speaker Change: Our expectation as a company is to grow adjusted EBITDA low double digits every quarter and if we don't.
Speaker Change: Then it's then it's a third quarter frankly.
Speaker Change: And that's how we bring it up on the scorecard, if we if we don't hit those numbers then.
Speaker Change: It's a third quarter. So you know and as we look out at 2025, we're optimistic.
Speaker Change: And we don't see any reason why we can't hit our goals.
Speaker Change: I'll just leave it at that.
William Duberson: Great. Very encouraging. Thanks very much, guys. I'll leave it.
Speaker Change: Great very encouraging.
Speaker Change: Very much guys I'll I'll give it to someone else.
Unknown Executive: All right, and with that, all of my participants, you can press star one on your telephone keypad. If you would like to ask a question, that is star one to join the question queue. Seeing no further questions, thank you.
Speaker Change: Alright, and with that I'll remind participant you can press star one on your telephone keypad, if you would like to ask a question.
Speaker Change: Star one to join the question queue.
Speaker Change: Yeah.
Speaker Change: Yeah.
Unknown Executive: Please press star one on your telephone keypad. Still no questions in queue.
Speaker Change: Okay.
Speaker Change: Seeing no further questions. Thank you. Please press star one on your telephone keypad.
Speaker Change: You'll no questions in queue.
Unknown Executive: Okay, thank you everyone for attending our year-end call, and we look forward to our next update in May.
Speaker Change: Okay.
Speaker Change: Okay. Thank you everyone for attending our year end call and we look forward to our next update in May.
Unknown Executive: All right, ladies and gentlemen, this does conclude your call. You may now disconnect your line.
Speaker Change: All right, ladies and gentlemen that does conclude your call you may now disconnect your line.