RCM TECHNOLOGIES, INC. Q4 FY2024 earnings call

• RCM Health Care closed 2024 on a high note with resumption of growth in hours, deepening school district partnerships, and a robust pipeline of new school districts and clients. K-12 growth driven by surging behavioral health services demand. Corrections clients showed strong performance in 2024 and expected further expansion in 2025.
• Life Sciences, Data and Solutions division had continued positive growth in managed service contract portfolio, Q4 revenue in line with expectations, exceeding GP and NOI targets. - HCM division exceeded quarterly quotas, secured new clients and multiyear renewals for managed service engagements. - 2025 to see shift to AI and ML tools deployment in primary markets. - Energy Services had robust performance in various areas including U.S. and European energy projects, active participation in technical associations. - Process & Industrial: RCM Thermal Kinetics launched new plant expansion program for ethanol industry, had equipment orders, and ongoing projects for lithium facility and evaporation test. - Aerospace & Defense group won business, increased headcount, and expected continued growth in 2025.

In the fourth quarter of 2024, for the Engineering segment, gross profit was $5.2 million compared to $6.1 million in the fourth quarter of 2023. Gross profit for fiscal 2024 was $22.5 million vs. $20.6 million in fiscal 2023. Gross margin in Q4 2024 was 19.7% vs. 27.0% in Q4 2023, and for fiscal 2024 it was 23.4% vs. 24.3% in fiscal 2023. For the IT, Life Sciences and Data Solutions segment, gross profit in Q4 2024 was $3.9 million vs. $4.5 million in Q4 2023. Gross profit for fiscal 2024 was $14.7 million vs. $16.2 million in fiscal 2023. Gross margin in Q4 2024 was 40.0% vs. 38.7% in Q4 2023, and for fiscal 2024 it was 37.5% vs. 38.2% in fiscal 2023. For the Health Care segment, gross profit in Q4 2024 was $12.5 million vs. $11.0 million in Q4 2023. Gross profit for fiscal 2024 was $42.5 million vs. $39.9 million in fiscal 2023. Gross margin in Q4 2024 was 30.0% vs. 29.8% in Q4 2023, and for fiscal 2024 it was 29.8% vs. 29.3% in fiscal 2023. School revenue in Q4 2024 was $34.9 million vs. $29.8 million in Q4 2023. Non-School revenue in Q4 2024 was $6.2 million vs. $6.9 million in Q4 2023; excluding a large long-term care group's service reduction, revenue was $5.6 million in 2024 vs. $5.5 million in Q4 2023. Trade accounts receivables DSO went from 114 in Q3 2023 to 92 in Q4 2024, with goals to get under 80 by end of fiscal 2025.

• Goal for 2025 fiscal year is at least double-digit growth on adjusted EBITDA for all quarters. - Very optimistic about 2025 and will give more guidance as the year progresses. - Another call scheduled in May.

• In Engineering group, a significant industrial process equipment order was abruptly canceled midway through the project and Technical Publications group had significant rework on a large project with an aerospace client, causing approx $900,000 reduction in gross profit. - Self-insured medical plan had abnormally high medical costs increasing SG&A expenses by about $1.25 million. - Settled a class action lawsuit regarding California wages with added SG&A expenses of about $450,000.

Q: Was any of the extra costs realized in the tax rate?

A: The effective tax rate is 34.0%, and the normal range is expected to be 26% to 29%.

Q: Did the canceled order in Engineering have anything to do with change in administration?

A: No, it's a nuance with a particular client.

Q: Any impact from DOGE on RCM?

A: No direct major impact seen as of today, and insulated from workforce reduction blips for now.