RCM TECHNOLOGIES, INC. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Health Care Services Group: Closed the 2024/2025 school year with strong momentum, expanding school partners, winning over competitor districts, internal training programs enabling qualified providers, robust pipeline, and leveraging the Philippines team for cost-effective scaling.
• Life Sciences, Data and Solutions: Life Sciences division sees momentum from innovation and operational excellence, with AI-driven equipment qualification streamlining compliance, data integrity solutions enhancing audit readiness, and a dedicated Life Sciences Engineering Group for differentiation.
• Engineering: Energy Services accelerating with an integrated strategy, custom engineering and EPC solutions, organizational changes to align with marquee projects, and focus on grid modernization, data centers, and infrastructure upgrades.
• Aerospace and Defense: Exceeded business plan goals, 53 additional hires in Q2 2025, year-over-year and sequential growth in gross margin and EBITDA, and vertical lift in technology innovator customers with multiple opportunities.

Segment Performance

• Health Care Services Group: Q2 '25 gross profit was $12.3 million, up 15.4% from Q2 '24. School revenue for Q2 '25 was $37.2 million, a 21.1% increase from Q2 '24. Nonschool revenue was $5.6 million, down from $6.2 million in Q2 '24.
• Engineering: Q2 '25 gross profit was $6.5 million, an 8.8% growth from Q2 '24. Gross margin for Q2 '25 was 24.5%, compared to 26.5% in Q2 '24. Engineering gross margins are volatile but generally expected to normalize between 22% and 26%.
• IT, Life Sciences and Data Solutions: Q2 '25 gross profit was $3.5 million, a 3.4% increase from Q2 '24. Gross margin for Q2 '25 was 39.8%, up from 34.9% in Q2 '24.

Guidance

• Consolidated gross profit for Q2 '25 grew 11.4% over Q2 '24.
• Adjusted EBITDA for Q2 '25 was $8.1 million, up 12.9% from Q2 '24.
• Adjusted EPS for Q2 '25 was $0.69, up 21.1% from Q2 '24.
• Anticipate full year free cash flow to align with net income.
• Expect at least low double-digit growth in adjusted EBITDA for the second half of fiscal 2025, with Q4 '25 expected to be the highest adjusted EBITDA quarter of the year.

Risks

• Seasonality in Q3 with summer school closings and heavy vacation months making Q3 challenging to forecast.
• Dependence on visa retrogression for international nurses, which could limit the number of nurses coming to the U.S. impacting staffing.
• Volatility in Engineering gross margins due to the mix of subcontractors and internal engineers in projects.

Question and Answer

• Q: You talked about data center infrastructure and grid modernization, how that's working and helping accelerate into that sector?

A: Bradley S. Vizi discussed marquee projects, improved coordination, industry trends, and a secular bull market in the sector.

• Q: Are most health care contracts K-12?

A: Kevin D. Miller stated primarily K-12, with new contracts adding to revenue for the 2025/2026 school year.

• Q: Color on internal training program in health care?

A: Kevin D. Miller mentioned training centers, training paras and RBTs, with competitive reasons for not elaborating much.

• Q: Engineering GM bounce back, why?

A: Kevin D. Miller explained mix of subcontractors and internal engineers, fixed-price contracts, and mix shift impact on margins.

• Q: Cash collections and receivables?

A: Kevin D. Miller discussed temporary receivables due to school PO issues, expecting them to come down in Q3.

• Q: Dividend consideration?

A: Bradley S. Vizi mentioned evaluating dividend with a clean balance sheet and potential stock appreciation, while continuing to evaluate the opportunity.