Q2 2025 RCM Technologies Inc Earnings Call
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[noise]. Good morning. This is the operator may I have your name please.
I'm, sorry, you kind of muffled I didn't get your name I got your company name.
Yeah.
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Okay I'll place you in here you go.
In short we are entering the new school year with strong tailwind is a clear strategy and a deep commitment to delivering value to our clients and shareholders.
Transitioning to life Sciences data and solutions in.
In the life Sciences Division, we continued to see momentum driven by our strategic focus on innovation and operational excellence.
Our recent investment in AI, driven equipment qualification, a streamlined compliance protocols, while reducing turnaround times across manufacturing sites.
<unk> advancements in data integrity solutions are improving audit readiness and strengthening our competitive position with pharma partners focused on speed to market.
These initiatives reinforce our commitment to digital transformation in regulated environments and set the stage for scalable growth.
This combined with building a dedicated life Sciences Engineering group will clearly differentiate our Sam for the future.
From an it perspective, we have made meaningful progress in AI and analytics, particularly as apply to life Sciences. This.
This continues to unlock actionable insights from predictive forecasting through real time monitoring.
These updates reflect how we are leaving technology technology, not just to optimize operations, but to fuel innovation at the core of our business.
Lastly, we see continued evolution of our HCM practice beyond our flagship U K G ready managed service programs with our reseller and extension to other future partners.
Now shifting to engineering energy services continues to move forward with increasing velocity.
As we migrate into the second half of the year, we are seeing a sharp acceleration in activity as we align to an expansive integrated strategy combining our custom engineering.
Capabilities with our turnkey EPC solutions to meet surging market demand.
As the need for reliable and resilient power delivery continues to outpace legacy infrastructure. Our team is increasingly called upon for engineering design builds and upgrades.
We have made a number of changes in the organization, including increasing efforts to align our brand with our marquee project work and industry is taking notice.
Furthermore, our ability to deliver precision engineered solutions across the most demanding environments as scale has served as a key differentiator.
This was enabled by our growing EPC footprint, our high performing engineering teams and our focus on integrating advanced technologies and industry, leading three D designed into the delivery model.
With continued growth in grid modernization infrastructure upgrades and data center expansion.
Our teams are delivering custom solutions that align with evolving market needs.
Key developments this quarter include.
Our integrated growth strategy, which is comprised of an expanded focus on custom engineering and turnkey EPC solutions for Substations and infrastructure builds to support large scale client programs.
Expanding our depth of services with utility and industrial clients by designing and upgrading facilities with advanced energy efficient technologies, and providing engineering solutions for data centers and their technology.
And supporting Substations and in electrical infrastructure.
Continued technical contributions to the eye Tripoli power and energy Society, reinforcing our sins leadership leadership in the power engineering space.
Operational maturity, resulting in streamlined project execution enhance talent integration and improved cross unit coordination through shared services.
Our engineering teams remain in the forefront of enabling next generation energy solutions positioning RCM as a trusted partner and an increase in comp with complex opportunity rich market.
Now to aerospace.
Due to the ongoing significant ramp up on our existing programs and the addition of new clients.
Aerospace and defense group has exceeded our business plan goals through the second quarter by almost $3 million in revenue with a healthy margin EBITDA performance.
So we have an aggressive plan for 2025 barring any unforeseen circumstances, we are on our way to achieving it.
Head count continued to increase through Q2 climbed 45 by 53 additional hires topping Q1 performance.
As projected we have realized a significant year over year increase in gross margin and EBITDA in Q2, 2025, as well as sequential increase of 11% and 8% in gross margin and EBITDA respectively.
Our vertical lift in technology in our innovator customers doing business with U S. Government continued to spearhead our growth thus far in 2025 with multiple opportunities on the horizon.
As anticipated continued success in supply chain manufacturing and quality engineering with new clients continue to have a positive impact on 2025. Additionally.
Additionally wins at the beginning of 2025 with two existing customers onto large multi year projects for S. 1000 D conversion continued to contribute to our success in delivering to our aftermarket clients.
Our recruitment team, which continues to build trusted valuable relationships throughout the client and candidate days have solidified our year to date goals.
Our integration of new tools and technologies has kept our team in the forefront of providing enhanced speed to market capabilities.
We continue to add new clients in Q2, 2025 with customers requiring our expertise in supply chain manufacturing and quality engineering with continued requirements for software and systems expertise.
We anticipate our growth to continue throughout 2025 as more of the opportunities in hand, our realized with the aerospace and defense environment seeking American companies, who can afford clearances after secret and top secret levels.
We anticipate a record year for the aerospace and defense group in 2025.
Now I will return the call to Kevin to discuss the Q2 2025 financial results in more detail.
Thank you Brad regarding our consolidated results consolidated gross profit for the second quarter of 2025 was 20 was 22 3 million, which grew 11, 4%.
He is 24 and yielded our highest gross profit over the past 13 quarters.
EBITDA for Q2, 25 was eight 1 million as compared to $7 2 million for the Q2 'twenty four growth of 12, 9%.
Adjusted EPS were <unk> 25.
It is.
Seven cents for Q2 24 growth of 21, 1%.
As for our segment performance in the second quarter of 2025 and health care gross profit for Q2, 25 was $12 3 million compared to $10 6 million for Q2 accounting for 15.
4% gross margin for Q2, 25 was 28, 7% as compared to 28, 8% for Q4 School revenue Q2, 25 was $37 2 million compared to $30 7 million for Q2, 'twenty four 'twenty, 1.1%.
Non school revenue for Q2, 25 was $5 6 million compared to $6 2 million for Q2 24.
In engineering gross profit.
For Q2, 25 was five point was $6 5 million compared to six zero million.
Our Q2 'twenty for growing grapes that are best engineering gross profit.
Quarter in our entire history gross profit for 2025.
Excuse me gross margin for Q2, 25 was 24, 5% 26, 5% for Q2 24 as a reminder, our engineering gross margins can be volatile, but we generally expect normalized gross margins between 22, and 26% and <unk> life Sciences and data solutions gross.
Profit for Q2, 25 was $3 5 million compared to $3 4 million for Q2 24, increasing by 344% gross margin for Q2, 25, 39, 8% compared to 34, 9% for Q2 24.
Regarding our balance sheet now operating cash flow was weak for the quarter coming off a strong Q1, we anticipate full year free cash flow to align with our net income specific to Q2, we had over $10 million from two major school clients delay due to school year 2024 and 2025.
Collected over 80% of that money and expect the rest to come to come in this quarter.
As a reminder, we have significant significant seasonality in Q3 with summer school closings and heavy vacation months for our billable workforce, which makes Q3 forecast. We do expect to continue to deliver at least low double digit growth in adjusted EBITDA for the second half of fiscal 2020.
Five and while we don't expect fourth quarter jump we saw in fiscal 2023, we do expect Q4, 25, which is our highest adjusted EBITDA quarter for the year. This concludes our prepared remarks at this time, we will open the call for questions.
With that ladies and gentlemen, if you do have a question.
Star one on your telephone keypad.
Again star one to join the question queue.
And then Scott I E Liam Burke of B Riley Securities.
Thank you and good morning, good morning, Kevin.
Good morning.
Hi, Brian.
We've got you talked about.
About the data center infrastructure and the grid modernization and how that's accelerating could you give us some color on you have some multiyear preferred partner agreements.
It's working and how that's helping you accelerate into that into that sector.
Yeah absolutely.
And I think it starts with some of the initiatives that we've had in place for a number of years that are starting to come to fruition.
First and foremost I'd point to.
Some of the projects I call marquee projects that.
You know are attracting a good bit of attention within the industry. So naturally you know.
Goes to become associated with your firm in this brand equity that goes with it.
And word spreads and the phone starts to bring a little bit more.
In addition to that I think historically when you look at RCM.
It has had a set of really good capabilities.
Did not do a good job as far as coordinating and integrating the operations that is something that we have put an increased focus on and really double down on.
Ill call. It the last 12 to 18 months and ultimately rolling that out to the marketplace.
So I think some of it is our Sam specific but also some of the certainly industry specific.
Yeah, just at a very high level I think we're all kind of reading the same things in the newspapers in and out.
Three different media outlets, but now.
Well I think the the surgeon spans that is frankly, it's here. It is it's pretty overwhelming and its historic without a question.
And you know.
It's really hard to find.
An argument that you know we're anything that in the early innings of it.
So if anything I think you when you look at the landscape of the industry.
I think that we're.
We're facing a protracted secular bull market.
And in many ways, it's almost guaranteed in my mind, because you simply have a number of bottlenecks within the supply chain that just simply take years to unlock so now all else being equal that would lengthen the cyclone regardless.
But you know.
From our perspective, I mean, the industry is so large and we're certainly.
It's starting to hit our stride at a good time.
It's hard not to.
It would be a big positive for the business.
Great. Thank you.
You seem to be adding contracts in the in the health care space on the educational side are most of those still K through 12 or are you able to leverage.
Your brand into other areas of education, like a community college or or.
Or rather municipal health programs.
No theyre, primarily K to 12.
Well you know, we're very very excited about this coming school year.
You know we've added another dozen or so new contracts.
Half of which we believe can be of a decent.
So a meaningful impact to the to the revenue for the 2025 2026 school year.
So.
We're having a lot of success in the K 12 that doesn't mean, we're not looking at other areas, but we're pretty focused on K 12.
Just a follow on to that you mentioned that you have gone in and are you taking new business at the expense of competitors.
Is that a trend we can expect to continue to see as you continue to add district.
We better.
Hmm.
Yeah.
Yeah, No we didn't.
We certainly expect that and just to put up you know.
A little bit more on that while we are certainly grabbing market share from competitors.
Is a high growth market right. So you don't necessarily need to grab market share from competitors to grow.
But you know we look we look to do both obviously.
Yeah. The other thing I'd add to that is if you step back and look at the K through 12 market as leaders right I mean like a lot of relatively nascent markets that are highly fragmented there's really a lack of encore institutionalization for a better term best practices et cetera.
As a leader in that space as a big opportunity for us to step in and really demonstrate you know our knowledge base in and ultimately when against some of the more local and regional competitors and naturally when you think about the different segments of the health care market.
You know there.
The things that make them market special right I mean, the inability to replace that human touch right. I mean, you magnify that when you start to deal with with kids, so and so theirs.
Significant opportunity from our perspective that you know.
Certainly from our vantage point, and and our size and given the market opportunity. There. So if there's a way to go there.
Great. Thank you Vik, Thank you Kevin.
Oh.
Bill ruling benchmark.
Hey, Bill Thanks.
Hey, good morning, guys, Hey on health care.
Kevin did you give the break out of school.
And other.
Yeah, we did hold on let me just okay.
I'll just.
I can get that later than he wrote the assets it's 30.
We were at 37, two for schools and a five six for non schools for the quarter. Okay. Okay.
The interim incident that internal training program you mentioned can.
Can you give us some color on that in health care.
Yeah.
In terms of our internal training program.
I mean.
We we go out we find people that we think would make a you know good candidates for our schools and we train them up ourselves and we have training centers.
You know and in several different locations you know, it's not something I want to speak a lot about just for competitive reasons, but yeah.
Yeah. We can liberally. We are these are these parents or is this I mean, because you're doing a lot of behavioral health now.
Can be it can be powers of RBC army, Ts as well, but mainly powers.
Button.
There are other types of people that we engaged in training as well.
And what about the Internet the international nurse side I know you've been.
And we manage it.
Yeah, well they just moved up these retrogression for a couple of countries and and.
We think we're probably going to have about I don't know 15 to 20 nurses coming in.
Either this year or early next year.
But if if if there's easier retrogression gets moved.
Which we think it will at some point we could have.
Who knows how many we we we we we have a probably.
500 nurses in our pipeline that are interested in coming to to the U S.
If you have any inroads with this administration please write a letter.
[laughter] yeah right.
Yes.
Wish I did.
The.
<unk> Engineering G M bounced back very nicely as you guys noted.
Is this kind of a <unk>.
A level, we should think about as kind of where the businesses are at this point.
I think it's a good indication of where the business is but you know like I said earlier, it's it's volatile right, you're going to see quarters, where it spikes up and youre going to see quarters, where it spikes down depending on what the mix shift is and you know as we said on our last call. We're very very focused on gross profit dollars.
And then and then managing the cash flow around those gross profit dollars. So you know if we drop under 20% and we had strong gross profit that's great. If we push it up and when we have strong gross profit that's great too.
We're just we're just really really focused on gross profit dollars.
Okay.
Oh, that's that's great. Thanks, guys good quarter.
Thanks.
Paul.
Oh yeah.
William Duberstein.
<unk>.
Hi, guys are running Belgrade Court Hey, Matt.
Nice to talk to you guys again.
Great quarter, a couple details coming through.
Nice sequential improvement in the AR.
Engineering gross margins, but just.
Double clicking on that you guys are I think winning a lot of new customers could.
Could we expect new contracts to.
Sort of with new clients to sort of start at a lower.
Gross margin and then potentially expand over time as you.
Shoot yourself out or is it just sort of standard between.
I don't know if you want to get into your content, you're talking you're talking about engineering.
Engineering specifically.
You know, we don't really look at it that way I mean, certainly you know if we really want to get into a client and we to bid something at a lower margin than we normally would we certainly will consider doing that and we'll do that for the right client.
But for the most part we're looking to get our margin that we think is fair and competitive.
And I don't think that it's.
Frankly, it's a super price sensitive market I mean, it's price sensitive of course, youre dealing with utilities, but you know.
They're much more interested in quality than they were a couple of points you know or a couple of Bucks you know and obviously they don't what your margins are but.
There's a lot of work out there right and quality work gets more work at good margins and that's the way that we kind of see it.
Biggest reason why you potentially see lower.
<unk> in our.
In our engineering group is when we have you know our fixed price contracts that in any given quarter are heavy on the subs you know and we have the subs costs running through our income statement you know we're going to see.
We don't make the same margin on our subs, obviously than we do on our internal salaried engineers. So that's typically why youre going to see a little bit.
Well you might see it drop a little bit and there are other factors involved but you know when we start talking about.
Engineering, and we look at the three pillars, you know aerospace is a little bit more competitive. So those margins tend to be you know a little bit lower.
But the other two groups in terms of energy services.
And our industrial processing those margins are generally pretty good.
But again, they they will come down depending on what's running through the.
The projects in any given quarter as I talked about in terms of how much of the of our revenue is driven by our ourselves.
That makes sense got it yeah, yeah absolutely.
Thanks for that color.
It was nice to see the improvement are there from last quarter.
And then just.
Generally trying to drive margins in the engineering above where we were in the second quarter, but you know it just again it just depends on the mix shift.
Got it alright, that's helpful.
And then just bringing back up the cash collections.
You mentioned it in your opening remarks should we expect.
Receivables to go up.
At the end of Q2, because it's the end of the school year or was.
This quarter sort of where they're idiosyncratic factors between those two schools you mentioned.
Well, it's really both the two schools that we mentioned just frankly random money on their P. O's and they Couldnt pass until they've got new P. O's and that happens you know look we crushed it with those two schools. So they ran out of money to pay us.
Was this which happens in the school systems, but that's okay.
I'll wait we'll wait for the money in and drive the revenue because you know we always get paid by the schools like we'd never have write offs and you know we're virtually never and you know they got the <unk> in place and we've actually been paid.
About 80% of the money today and I've just got a notice yesterday, we're going to get the rest of it next week so yeah.
Yeah, I mean, it's unfortunate that you know are our receivables don't look great at the end of Q2, but it's it's a temporary situation and cyclical in.
You know, we should see those receivables come down in Q3, most likely although depending on how much we're pushing the envelope with some of these new schools, maybe it will be up but if its up it will be a good thing.
Got it that makes a lot of sense.
And then.
Finally in a previous question I think you touched on the immigration.
And then you have a lot of nurses are interested in coming to the U S is.
As immigration and supply.
Gating factor at all right now I mean, you guys posted great numbers, there, so probably not but I was just wondering if.
It was possible you could have you done even more.
The supply side opened up more or if that's just sort of a future.
Yeah, Let me let me let me tell you how we look at it was just pretty simple we're gonna grow 'twenty five 'twenty six school year, whether immigration opens up or not.
We're very confident in our ability to grow our school business you know this school year compared to last school year.
If immigration cooperates it can make the difference between a good year like a good 2026 and an incredible 2026.
So we'll see what happens.
We just we can't obviously predict what's going to happen with immigration you know, we we may not get any.
Meaningful number of them are nurses in in 2026, we may get 100 or more it's just it's really hard to.
To say, but what we believe is that over time.
Immigration OA.
Usually comes around to the conclusion that if you want nurses in this country you Gotta go get them from somewhere else because they just don't we're not making enough nurses in this country to satisfy demand.
It's just that simple.
Don't see that changing anytime soon.
Got it great.
Hopefully that that does open up and.
That was all I had great great job guys. Thanks.
Oh I see no. Further question. Thank you I'll remind everyone. You can press star one on your telephone keypad, if you would like to ask a question.
Our one on your telephone keypad.
Oh.
We have been.
<unk> injuries.
Good morning, Matt.
Hey, guys how are you.
Alright, great I.
I enjoyed the quarter. Thank you very much.
I'd like to I'd like to just.
Make a couple of statements and then this <unk>.
Give me feedback on what you are what you can and in your thoughts on it.
If I look at RCM and kind of the you know the bigger trends out there and I think you've you've positioned the company in two areas, where the wind seems pretty strong at your back which is the education and the engineering Slash T M D and those trends.
Seem to you know looks to me at least to be multi years going forward.
<unk>.
And you know during the last three or so years, you know our stock is.
Much gone sideways and I think you've guys have done an excellent job you know before the stock took off and in and after the stock took off and has essentially gone sideways and fallen out of bed a lot of times two to reduce the share float I I think that was incredibly wise.
Some of the best I've seen over my career.
Our management doing that.
But.
And so if I look at those two divisions, where I think there's a solid wind at your back it seems that.
You know, even though rcm's businesses can be volatile it seems that like you know roughly two bucks and EPS you know going forward per year.
Seems achievable you know it doesn't it doesn't seem like you're going to do a dollar or 50 or anything like that it seems like you're going to be somewhere in a in a in a solid area like that so.
My thoughts are in and I mean, if we look at the stock trading action and stuff in the small cap stocks as well as some of the large cap stocks.
I don't even think there's humans trading them anymore I, just think its toward total AI and AR.
And so my thoughts are if if we instated dividend say, an 80 cent dividend, which should easily be covered if you're making making a couple of bucks a year in EPS.
Open the world up to.
A little different shareholder base.
And.
The people that own your shares and have been loyal to you for for many years, you know get a little bit of a boost and I, just think kind of where you're positioned now after these.
No.
Work hard work.
Maneuver some of these divisions and what the what the divisions can throw off in EPS and kind of where the stock is to where you've been buying it back historically.
I, just think I'm trying to make I just think it's a much better case to two two to implement a dividend.
Yeah Ben.
It's a fair question.
As you know it.
Thinking about often.
Dialogue about it frequently as well.
And Mark you know, depending on the facts and circumstances at the moment.
No.
You might come out on a different side of the ledger right.
So what I'll say, you know where we sit today as you know.
The company is in a really good spot.
And I think that the ability to put a dividend in place with a you know.
Currently debt free balance sheet, having reduced call it 45% of the share count.
Maybe you have a small net cash position.
You know it probably makes as much sense as ever so and you know, it's something that will value continuing to evaluate and as that date gets closer you know it could become more of a reality that being said you know there's some great things going on in the business right now.
I agree with your assessment with respect to the transformation of a capital markets, particularly in our segment of the market place.
Flip side of that as you know when you have a lot less shares outstanding and a relatively limited supply of high quality companies. In this segment of the market you know you could be.
Yeah, the prettiest girl or Guy at the dance right.
And you know.
<unk>.
A clean balance sheet as growth accelerates with a lot less shares.
You know as you know this is something that hasn't changed in the last 20 or 30 years are these things can happen overnight in terms of stock appreciation.
So.
In the meantime, appreciate the patience.
We're in the trenches every single day.
Working towards building, the business and making it stronger.
But the good news is is we're not just getting stronger on absolute basis are getting stronger on a relative basis.
And increasingly attractive also you know when you think about.
The funnel of opportunities right I think this is an area where our size is an advantage.
As you continue to distinguish yourself right as a little almost think of it as a little Big company right.
Now we're a company that has a lot of big things Big attributes, but the reality is our size is relatively small from a valuation perspective.
As bigger outcomes start to come to fruition right. They have a disproportionate impact on the P&L, but for example, I. Appreciate you know you're $2 earnings figure, but I got to tell you I don't know it'd be pretty disappointed if we're only at $2 of earnings 24 months from now.
And we very much think of the company as a growth company.
Especially when you start to think about our performance.
Relative to our peer airbase of all sizes really.
We've significantly outperformed on a relative basis and we.
Or anticipate.
Attractive performance on an absolute basis so.
Hum the valuation will take care of itself I mean, just to sum it up.
Yeah, I agree I agree and I and I agree with your assessment that are usually you can put in work for years and then all of a sudden you're your your valuation comes all within 30 days you know, even though you're sitting around 36 months waiting for it usually is what happens, especially with these.
Mahler cap smaller cap stocks. The reason I kind of threw that two dollar out out there because I think it's a pretty solid number by me just looking at your divisions and you certainly don't want to you know overreach. When you put in a dividend you put in a you know a decent dividend then you still got money to still pay down debt you still got money to.
Do some IP acquisitions.
I think where we're aligned in conversations in the past is.
I think it's wise to you know.
And money to buy IP and so it can be assimilated into your company rather than doing some huge acquisition that often you know ends up blowing up in your face 24 months later, so so that that was the thought where where our money is spent you know more evenly across a cup.
All of areas rather than you know just one area, but I appreciate your thoughts and I appreciate the.
How are you guys have built this company. So thank you and then I would say too bad one more thing I'd, just inserted and they're done right and just to emphasize you know working towards a clean balance sheet that we think our balance sheet is well within the range of very comfortable in our target.
Target range I'll call. It loosely defined as you know as you think about you know.
Potential outcomes that exist.
And for a company our size, particularly to the upside right.
And this dynamic of an environment right.
So.
Having a clean balance sheet is really it's almost a strategic asset and a lot of ways because some of these partnership dialogues right I mean, it could be obviously material and ultimately that's why Joe.
We refer to them and we move them forward and they oftentimes they they start off.
On solid footing and then they grow every single year and you know you wake up a few years down the road in there, they're very sizeable but look I mean, sometimes they can.
Go very very rapidly too.
Again.
We're in dynamic markets.
Now we've got.
We positioned ourselves really well, we've got some really talented folks.
Hmm.
We have discussions right and ultimately.
Now.
How those mature right theres unknown aspects of that but you know what we want to position the company. So we can.
Maximize the value of those discussions right now when when that moment comes so in other words those opportunities for step function growth.
We're not constrained in any in any manner frankly.
Understood Brad in Europe people business, and I think levering up people businesses.
Not a great move you can get lucky.
But if you don't get Lucky then you're in a world of hurt so I'd, rather see a clean balance sheet I agree with you.
Oh Wow.
This does conclude today's Q&A session speakers I'll turn it over to you for concluding remarks.
Thank you for attending our Q2 conference call. We look forward to our next update in November.
Hi, everyone.
All right, ladies and gentlemen that concludes your call you may now disconnect your lines and thank you again for joining us today.