RCM Technologies, Inc. Price & Performance (RCMT)

Headcount has increased an additional 20% in Q4 twenty twenty four over Q3 twenty twenty four which was already a significant increase over the first half of twenty twenty four. 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 We which amounted to a top line increase of $1,300,000 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. Our vertical of customers and technology innovator customers doing business with the U. S. Government and Tier 1s 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 product products in manufacturing with increased aftermarket demands as well. All anticipated requirements throughout our customer base in Q4 twenty twenty four 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 back One of our newest awards have just begun to gain track and we expect these new multiyear contracts to drive and expand our model based expertise, software systems, logistics, avionics and aftermarket expertise throughout 2025 and 2026. 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. We look forward to solidifying additional clients and program wins in '20 We Now I will return the call to Kevin to discuss the Q4 twenty twenty four financial results in more detail. Thank you, Brad. Regarding our consolidated results, consolidated gross profit for fourth quarter of twenty twenty four was $21,600,000 flat as compared to the fourth quarter of twenty twenty three. Consolidated gross profit for fiscal twenty twenty four was $79,800,000 compared to $76,700,000 for fiscal twenty twenty three.

Adjusted EBITDA for the fourth quarter was $6,300,000 as compared to $8,900,000 for the fourth quarter of twenty twenty three. Adjusted EBITDA for fiscal twenty twenty four was $25,900,000 compared to $26,600,000 for fiscal twenty twenty three. Adjusted EPS was $2.03 for fiscal twenty twenty twenty four as compared to $2.04 for fiscal twenty twenty three. During Q4 'twenty four, 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 900,000 reduction in gross profit in Q4. We Additionally, our self insured medical plan had abnormally high medical costs that increased SG and A expenses by about $1,250,000 from what we would normally expect. 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 and A expenses between the increased settlement costs and the additional legal fees.

As for segment performance in the fourth quarter of twenty twenty four, in Engineering, gross profit for the fourth quarter of twenty twenty four was $5,200,000 compared to $6,100,000 for the fourth quarter of twenty twenty three. Gross profit for fiscal twenty twenty four was 20 was $22,500,000 compared to $20,600,000 for fiscal twenty twenty three. Gross margin for the fourth quarter of twenty twenty four was 19.7% compared to 27% for the fourth quarter of twenty twenty three. Gross margin for fiscal twenty twenty four was 23.4% compared to 24.3% for fiscal twenty twenty three. Gross margin in the fourth quarter of twenty twenty four was very low primarily due to the two expenses 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 2428%. In IT, life sciences and data solutions, gross profit for the fourth quarter of twenty twenty four was 3,900,000.0 compared to $4,500,000 for the fourth quarter of twenty twenty three. Gross profit for fiscal twenty twenty four was $14,700,000 dollars compared to $16,200,000 for fiscal twenty twenty three. Gross margin for the fourth quarter of twenty twenty four was 40% compared to 38.7% for the fourth quarter of twenty twenty three.

Gross margin for fiscal twenty twenty four was 37.5% as compared to 38.2% for fiscal twenty twenty three. We generally expect IT, life sciences and data solutions gross margins between 3640%. In healthcare, gross profit for the fourth quarter of twenty twenty four was $12,500,000 compared to $11,000,000 for the fourth quarter of twenty twenty three. Gross profit for fiscal twenty twenty four was 42,500,000.0 compared to $39,900,000 for fiscal twenty twenty three. Gross margin for the fourth quarter of twenty twenty four was 30% compared to 29.8% for the fourth quarter of twenty twenty three. Gross margin for fiscal twenty twenty four was 29.8% as compared to 29.3% for fiscal twenty twenty three. We generally expect healthcare gross margins to be between 2830%. School revenue for the fourth quarter of twenty twenty four was $34,900,000 compared to 29,800,000.0 for the fourth quarter of twenty twenty three. Non school revenue for the fourth quarter of twenty twenty four was $6,200,000 compared to $6,900,000 for the fourth quarter of twenty twenty three. However, if we remove a large long term care group, where we deliberately reduce services, revenue would be $5,600,000 in 2024 versus 5,500,000.0 in the fourth quarter of twenty twenty three.

Regarding our trade accounts receivables, we made some headway this quarter going from 114 DSOs for the third quarter of twenty twenty three to 92 DSOs for the fourth quarter of twenty twenty four. We had two balances at the end of fiscal twenty twenty four, both of which were cleaned up in the first quarter of fiscal twenty twenty five. 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 $6,000,000 In IT, life sciences, data and solutions client stopped making payments while we negotiated change orders and a two year contract extension, the company estimates that the client's 28 excuse me, 12/28/2024 accounts receivable balance exceeded normalized levels by approximately 3,800,000.0 Our goal for DSOs is to get to under 80 by the end of fiscal twenty twenty five. Our goal for all quarters in fiscal twenty twenty five is at least double digit growth on adjusted EBITDA and we are very optimistic about 2025. We'll give more guidance as the year progresses and we'll have another call in May, which is not too far away.

This concludes our prepared RCM. At this time, we will open the call for questions. All right. We do have a William DuBerson. Your line is now open. Hello. Hey, guys. Hey, nice to talk to you again and thanks for all that detail on the the extra costs You went through a bunch of line items and I might have missed this. But it looks like your did it was any of that realized in the tax rate because it looks like the tax rate was over 50% this quarter. I'm not Yes.

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 for the company overall. And the effective tax rate is 34%. When we file the 10 ks later, you'll see a rate reconciliation Certainly, if you have any questions on it, feel free to give me a call. But I'll just say that the 34 effective tax rate is very, very high for us and very abnormal. And what is driving a big chunk of that is permanent differences having to do with truing up deferred tax liabilities? Right? So it doesn't impact your cash taxes, but it impacts your GAAP taxes. So about 5% of that is stuff that we don't normally [indiscernible] [indiscernible] we don't normally see. So the upshot of it is we absent anything I'm not aware of, we should not see a tax rate anywhere near 34% year in effective tax rate. It should be well below 30% Do you have a range of what so called normal tax rate might be?

Sure. I would say normal a range would be 26% to 29%. And probably the midpoint of that is probably a pretty good guess. The more we make, the more pretax 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 if you ignore permanent differences altogether, our rate is around twenty six point five percent. But if we were above twenty seven point five percent next year, it would surprise me. On an effective tax rate basis.

Great. Yes, thanks for that. And for the the specific cost on engineering, I think you called out a an order being nine hundred thousand. The 900,000 total for the two items that occurred.

Right.

And that's an increase to direct costs essentially.

Right. It's a combination of increased direct costs and essentially loss revenue that we expected to get in the fourth quarter. So you wind up with a little bit lower revenue and higher costs and the end result is about $900,000 in dollars in lower gross profit than we would have had absent those two items.

Right. So sorry, was one item resulting in lower revenue and one item increased No, 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 with hours that would normally be billable and would normally generate revenue and you're not generating right? So it's in that case, it's you're losing revenue on people that normally would be generating revenue. So it's both, right? You have higher you just and you wind up with a real crush to your gross profit dollars and your gross margin And the client doesn't recompense you for the work done [indiscernible] project was canceled?

Well, yes, but we certainly cut it off. But the way the contract works, we still lose significant revenue by canceling the order midstream.

So Okay.

Had we completed it, we would have delivered equipment that we would and we would have made a lot more money on it than having a canceled order.

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 Obviously, the election happened during November. I was just wondering if [indiscernible] No.

There's no political factors there. It's just a nuance with a particular client.

Okay. And I guess that led me to wonder if there's any sort of effect you're seeing from maybe like Doge or any sort of [indiscernible] are out there considering some of your clients are government contractors or may receive money from some government agencies?

No direct nothing direct. I mean, I think Doge can potentially have some impact on the IT environment in general, not talk not talking about RCM. I mean, we don't do well. We most of our work for government is working as a subcontractor. Most of that work is in the aerospace industry. And we don't as of today, we don't expect any major impact. Certainly, if a lot of IT workers are getting laid off, because of Doge, that can impact the IT environment in general. But like we don't see any direct link as of today to any major impact on our Centimeters? And I'm sure Brad probably could expand on this, but that's what we're seeing today.

Yes, no. I would just really quickly, I just echo Kevin's sentiments The other thing I'd see playing out, right, which we seem to generally be insulated from when you start to think about services business and particularly ours, the times when you do have blips, and material reductions in workforce. Inevitably they overshoot right? And so the first ones that actually come back tend to be contractors like us. [indiscernible] So as I see all this playing out just like you do, And we're again managing the business every single day, continue to move the ball on the field. And we're not really seeing an impact.

The more I see this play out, the more I think myself at some point, these reductions in workforce, are we going to be on the right end of overshooting, right? So in other words, like these government reductions, you're 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 a gap you have to fill. Pretty quickly. So it's too early and there's too much uncertainty with respect for me to count the table either way. But it hasn't been an impact today and and we're optimistic that at some point it may actually be a tailwind. [indiscernible] That's That's encouraging. And sorry, my final thing, it looks like absent those one time charges, you guys would have grown operating income a little over 12%. So that's obviously much better. And did you say you were looking towards double digit bottom line growth every quarter or for the full year?

Well, at least yes, at least that for the full year, right, because we had a disappointing fourth quarter. But we strive to grow our adjusted EBITDA 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 twenty twenty five is sort of a long ways away. I don't think we're going to see sort of the hockey stick in numbers that we saw in 2023. And which we thought we might see in 2024 that we didn't see. But, we're our expectation as a company is to grow adjusted EBITDA low double digits every quarter. And if we don't, then it's a failed quarter frankly. And that's how we bring it up on the scorecard. If If we don't hit those numbers, then it's a failed quarter. So 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 I'll leave it at that.

Great.

Very encouraging. Thanks very much guys. I'll leave it to someone else.

Seeing no further questions in queue, Okay. Thank you everyone for attending our year end call. Look forward to our next update in May.

All right. Ladies and gentlemen, this does conclude your call. You may now disconnect your line.