RCM TECHNOLOGIES, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Brad Vizi highlighted internal business strengthening, focus on next-generation leadership, RCM Health Care's strong start in 2025 with K-12 growth and HIM division pipeline. Life Sciences and Data Solutions had a 40% gross profit, 23% NOI contribution, and 6 new clients in 2025. Engineering divisions: Energy Services secured multiyear agreements, Process and Industrial advanced with Thermal Kinetics expansion, and Aerospace Group exceeded revenue and EBITDA objectives.
• Kevin Miller reported consolidated results: Q1 2025 consolidated gross profit was $22.0 million, up 7.9% year-over-year; adjusted EBITDA was $7.8 million, up 14.4% year-over-year; adjusted EPS was $0.63, up 18.9% year-over-year. Accounts receivable DSO improved to 74 days, and net debt was reduced to $18.2 million.

Segment Performance

• Health Care: Q1 2025 gross profit was $12.2 million, growing 10.2% year-over-year. School revenue in Q1 2025 was $37.3 million, an increase of 16.7% year-over-year. Nonschool revenue, when adjusting for a reduced long-term Care Group, was $5.5 million (vs. $5.1 million year-over-year). Gross margin for Q1 2025 was 28.2% compared to 29.0% in Q1 2024.
• Engineering: Q1 2025 gross profit was $6.2 million, a 12.4% year-over-year growth, marking the best engineering gross profit quarter in history. Gross margin was 19.2% in Q1 2025 compared to 23.4% in Q1 2024. Lower gross margin was due to pass-through construction revenue from EPC contracts and lower margin from the Aerospace group.
• IT, Life Sciences and Data Solutions: Q1 2025 gross profit was $3.6 million, a 5.3% year-over-year decline. Gross margin was 39.7% in Q1 2025 compared to 37.0% in Q1 2024.

Guidance

• Expect at least low double-digit growth in adjusted EBITDA throughout fiscal 2025.
• Anticipate Q4 2025 to be the highest adjusted EBITDA quarter of the year.

Risks

• No specific risks related to political policy uncertainty impacting business were discussed; Brad Vizi stated the macroeconomic environment is not a concern, and the business leverages secular themes.

Question and Answer

• Q: Is political policy uncertainty moving into the business or a concern? A: Brad Vizi responded that the macroeconomic environment is not a concern, and the business leverages secular themes to navigate potential impacts.
• Q: Health care gross margin delta? A: Kevin Miller stated it was quarterly noise, with a mix shift in nursing contracts having lower gross margin, and expected Q2 to be better than Q1