Earnings call transcript Q1 2023

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Kevin Miller

Good morning and thank you for joining us. This is Kevin Miller, Chief Financial Officer of RCM Technologies. I am joined today by Brad Vizi, RCM’s Executive Chairman.

Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates, assumptions and information currently available to us, and these matters may materially change in the future. estimates are beliefs, changes. to these of and subject assumptions rapid Many

please reports more statements X-K well to our to other subject, forward-looking on that time which issue from press the the are For the our as and we and file information SEC XX-Q Forms on XX-K, risks, with uncertainties they releases see and we periodic as time. factors that

of to RCM’s the call over Brad provide I quarter. an Chairman, overview performance will turn now operating Vizi, to the during Executive

Brad Vizi

Thanks, Kevin. morning, Good everyone.

steady others business Also, in wholesale in laid my each As carefully following the anticipated, segment. started to invest hire. secular parts best the pull posture workforce. the to RCM and we asset, experience, foundation greatest discussed company rate, provide is business of with our us cadence decline should strong, our in as labor the March, timing after But run ramp-up offensive model. program the In our finishing restructuring a time economy’s of units. retain we shedding XXXX continues to staff, despite drumbeat when to our as XXXX of year RCM force primarily the – tailwind build us in certain project on Engineering continue increased allowing activity we expected, as slower to anything, in to back, of further due our If fortifying than move believe through sequential our

embrace a partner experience capital increasing further best macroeconomic management. on of they uncertainty incentivize as in employee companies and value-added and focus addition, turnover, what perennial decades human In to do with dynamism technological us

on briefly Healthcare. provide unit, an Now business with each I will update starting

to increased had Our contributed for our first health demand success. sequential a nurses, The growth. fourth quarter Specialty professionals exceeding health significantly allied performance our behavioral and demonstrating and Healthcare quarter, Division solid

results. of the has healthcare dedication solutions Our clients driver to to staffing primary our our been delivering best-in-class

new have attracted and workforce and existing clients, clients growth. have We our essential their fueling hospital increased school K-XX further

of United have districts excited a and expansion we the we school new presents robust across potential. In its This addition, about pipeline significant growth are opportunities, States.

on already focus success for and of growing significant healthcare current market. environment care in health a will professional a well-being. providers. this school and system experienced health decades districts nursing highly become critical. stressed nurses ensuring a impacts to professionals schools healthcare responsible and has schools The our have healthcare poses facing Our the need even receive in more healthcare post-pandemic shortage and It providing educators The drive providers concern and behavioral skilled the they educators in for The This for has challenge further of student’s shortages education. for best become underinvestment. professionals significant and

health and Nurses vital play promoting role a educating among students. in

understand address for become significant the we the for with professionals of behavioral collaboration clients for with importance students. to Additionally, challenge At schools difficult need makes necessary and these resources RCM, support health behavioral the more educators. provide cope our students a health support to in shortages with it issues. mental schools of lack to has health The

with healthcare ensure We staffing best-in-class solutions innovative partners receive students find committed K-XX working our to care. are to closely and

been management and programs Collectively, largest the our program Sciences agreement services Life the offerings our second two of the a has partner HCM by with On The to so managed technology IT for bolster flagship offering. into managed expanding that provider. expanded successful its our partnership practice become service workforce continues front, portfolio. have excel multiyear our the we client’s large core one and

large-scale new clients, team secured manufacturing Life has commercialization several Sciences including Our two projects.

we conditions. as We economic managed shift offerings in long-term see to in mitigated volatility. provided and shift expand primary our away business The has to In services has largely episodic exposure from across all for growth one-off service platform focus contracts our all for engagements to increased long-term our offerings. service our XXXX addition, reach opportunities a

Engineering. to Moving

quarter modestly startup in new strong Industrial our results were plan the and level timing high sites work pipeline. the above commissioning A growth run below QX Processing and with to led job and RCM First of projects customer at of backlog rate. performance

to in a quarter the and flourish end multiple business the evidenced trajectory work uptick and production strong recent for the Kinetics of diversification most backlog The continues is fuel by scale the additional customers However, ventures. year-over-year become forecast Thermal current Growth scale demonstration group fully in markets, projects and delivery to awards. Process funded bookings forecast with unit to notably, the continue Industrial the demonstrates as of growth. and potential and at

RCM and strategic in Thermal momentum ingredients several with new has synthetic leader bringing including sustainability nontoxic clients partnerships, the global biology, gained Kinetics and scalable chemicals industry. Solugen, to

a of in You featured editorial. manufacturing today magazine, Solugen can read is edition more where March in work the major about the

New with QX, online partnerships ethanol ones companies Quip Brazil. where in Fluid two have complement Technologies we this in fuel another like like longstanding both projects brought

the for rolling for in owners, investment for the in an a Thermal facility industry. materials carbon-neutral for equipment As RCM demand Kinetics mill demand is seeing aluminum increase push future and increased also drives

example while supports through recovering grow this kicked X-figure is and through XXXX operators one reducing awards quarter. build with distillation momentum during meeting secured environmental serves. beyond substantially oils team Our continues multiple first the off and with plant well our largest The and Energy markets diversification This North customers technology PL for a provides compliance several a expensive growth technology-led and of process the projects America’s quarter. another and of model costs. Services business work backlog mid-quarter seeing for in to utilities the high-value rolling solution in pipeline is

partner modernization to with its office we substantial partnering key aligned utility opening Energy trusted these the European align achievement new future Germany. grid a a as mission support ability is of and our the relationships. its a look awarded for footprint project group’s carbon-neutral the towards to forward The were be Group Europe. its footprint large with grow a strengthening This to during is pleased for Services across to of continues and expansion in grow the to client energy announce quarter. We the well the better to We of

has Group the one Services and efficient, focused, for portfolios sturdy focused Energy most solutions the success. clients expanding team. existing on this foundation upon to while innovative clients’ executive of seasoned through robust first by complement history. XXXX The capabilities with new remains the and our of adding drive management existing its to scope and quality continued quarter It customers Aerospace of in growth to deliver clients building backlog adding

customers and X and We engine new portfolio presenting the have huge into added our broken to Aerospace market, component potential.

expertise in manufacturing new management provides environment. realm needed experience much Our this team the and of senior

customers. Our both space and the current new engineering base and in aftermarket mobility employee air arenas and continues in areas with adjacent expand to other into

Our development sales new before pipeline vessels clients, and The of most industry. this the and us been successful XXXX, largest a has new X foothold in mobility with flight, gaining on the is include this business clients OEMs of commercial of close in sea depth air new breadth ever airlines. and many the – will vertical largest potential and opportunities to to year-end it new X

utilize successful clients. rate with ready requirements remains and several team proven agility and at network, has to recruitment recent speed-to-market compete which ramp Our its approach,

aftermarket combination added a in April, into segments. learned our parts while ideal maintenance MRO as RCM’s other growth continues we throughout the aftermarket Senior This that and and of with been aftermarket. skilled market will addition we teams continue discussions remains in and to leading segment industry. be agreements, in areas for solutions negotiating air to help had cross-functional aviation Attending agreements travel experience an aftermarket of Additionally, drive President, park challenging. for demand and establishing strategies The Americas with partnership MROs. area week, shortages be surplus Vice new OEMs in This many diversification labor is strong,

in sheet balance cash business start shares high Before and front. repurchase I to XXX,XXX progress turning take financial million our model who on a shares generating allocation X.X to opportunistic transaction. will of have our the cover touch call over capital in moment including an Since purchasing us allowed the the detail, on the Kevin, our year, to more results will clean private

as our addition, generated anxiety. market cash maintain pursue to strongest growth flexibility work financial quarter, seasonally capitalize programs great on we In we opportunistically to through react and

I detail. will more call QX to the the turn in Kevin Now XXXX to discuss financial results full year

Kevin Miller

you, Thank Brad.

$XX.X to the Regarding our impact The of peak Healthcare, in consolidated in we comp was against following: results, first for due our decrease mainly in have quarter the revenue a COVID XXXX. revenue was QX million.

we saw to shifted as revenue naturally, a pandemic decline an endemic. in the So

growth last However, call, as we for demand the as non-COVID-related robust. our sequential our underlying services telegraphed solid is on saw

the projects projects. immediately we quarter a from was ‘XX not same time there QX getting and a large see Engineering, around gap new several with is for As occasionally where ending replaced

group increases Sciences our from margin Engineering and We to margin sequential Gross and XX.X%. rest of outstanding performance in Life first IT. Healthcare We versus was quarter expect saw XX.X% the XXXX. throughout see gross the

due lower utilization saw we in associated our project to gaps. performance However, weak margin Engineering with

sequential look to to Healthcare its growth As we second the continue trend. expect to experience quarter, underlying we

to school to see top we line due expect a closings, However, sequential decline.

at through school largest other end of June are session the second closes not XX. May, school most in Our client clients and

Healthcare. decline optimistic match Engineering whatever are that sequential our We from group can we see

see a in increase modest As quarter. for IT, to we second sequential the expect

expect we group quarter, our growth see to trends. continue Healthcare second strong the beyond look we As to

As will XXXX significant in best we get that we through amount. quarter QX believe be ‘XX by school a Healthcare’s closings QX, in summer

schools XXXX-XXXX In year. the excited addition, and offering school we health about incredibly new our are for behavioral

to backlog realize in to continue gains to project our significant Engineering expect as the We continue convert pipeline. strong group see sequential we and our

anticipate Life quarter With each IT, Sciences wins sequential and service recent managed we the growth in XXXX. in

and call we summary, as our fiscal into concludes lining an open up questions. This quarter remarks. fourth this believe we will we prepared for impressive XXXX. time, rate run are the we head In At

Operator

least it Instructions] question Alex And at Rygiel one so look Financial. Riley does from B. we far in got from [Operator like

open. now line Your is

Alex Rygiel

Thank you, Kevin.

guidance Just for there. the – thanks and added

about Health like you be a down suggested it to sequential would it that comment related As bit, Engineering your offset being team. down Specialty by basically sequentially sounded XQ the little

first? wanted to that confirm I So

Kevin Miller

Yes. be we’re we are I mean – but each know to in are other. sure. will exact two don’t I what QX, we offset the going revenues the optimistic that like Obviously, said,

Alex Rygiel

here, heading your first picture standpoint, bigger the out. Brad, suggest your comments allocation, from confidence kind macro then a quarter capital in would bullish very share And repurchases Great. of

is see do You customers, that has don’t to maybe growing of disclose backlog you understand like, you can changed number how backlog it I know sounds and how year-over-year but us year? new you and the help sequentially sort a referenced therefore, of throughout growing. backlog,

Brad Vizi

broadening it what’s the across the building. level is that activity more probably the certainly clients and increasing. of have, But only is confidence encouraging is pipeline the work also of the Backlog level is but we of portfolio, involvement our Yes. size not and with

and So in business kind again, the orientation do continues confidence – certainly becomes start we’re as share balancing when particularly that. growth what continue precise it cadence, mature, we project-oriented little Inevitably, increased bit of in the you when you’re a we have willing guidance, more given versus some to of we to of as difficult, profitability?

Alex Rygiel

very Very much. helpful. Thank you

Operator

are got – Sutherland there no Benchmark. another question, that, of with And Bill just We further

Your now line is open.

Bill Sutherland

Hey, guys. Thanks.

evenly not you in Engineering, it even back timing to year, quarter? of as coming maybe weighted more half more feel be the going would a try like the Or to it on it’s be fourth So does the about think but projects distributed? in just

Kevin Miller

I to project, will than say better but should be should than difficult of be projects I QX. see significantly because than timing is better Hard the QX and that the think to be better we’ll think QX QX And Bill, of exactly, QX QX. significantly some

think we’re good. I So

sit than and better QX should I the realization and QX well. QX think of as backlog we be both pipeline, here rollout as strong forecast the QX but would and today be

So quarter see [indiscernible] head we’ll we’re we optimistic as each out.

Bill Sutherland

a you get seasonal you and have ones. because that at start seasonally bit wrapped And the little get to typically a from off of projects QX new up, just least QX,

Kevin Miller

that. see a Typically, different, often year is Every but yes. little we

of close. for wind going One the building, contract, that of aerospace major to past one QX come bunch ending with off be have to to more projects things and year. year. could impacted five beginning us in end is some major that in the several dynamite. of we the we clients lost that we’ve is the going clients, we’re think of happens that types seeing we going addition aerospace we’re XX They’ll think which and about to had new a of whole our added this is a new people you’re between we for gaps think to Brad rebuild in but some close and of and then fine. that take we second that business half with while of the gaps when seven And things we’ve These you’re never clients yourself, filling up clients in ramp have mentioned now we worked in a little the to we the the

group we’re QX really have number. we in excited up Aerospace in going really, despite the So the about going what on not

Bill Sutherland

Just when then you’re that And in Xish of that you for calendar? little are tend curious... look do September kind in Yes. you off the or clients the this to some a Do to coming fall start at education year. the have school education onboarding contracts these traditional have

Kevin Miller

the of right? or some MSA at if the we’re kind contracts newer with of a map, able be all the not of may with client that getting an client in win the that April, M&As, general you school place contracts lot current a are you a may to bit And year. The school end are people over but

can we few add Sometimes a people.

whole and of them our a contracts school of we’re really that optimistic XX talking you of when gearing we win about the win the new, and start around providers a not that September, could in a of bunch we’re up a some it’s Sometimes lot we’re year either for to now we’re – school potentially we or lot clients of XXXX. okay, contracts rolls new is August, maybe big In year, year, get to schools and get between get that the of and are school because we optimistic September. next that that don’t that XX if September put up there we XXXX-XXXX the can put But the we school XX and new for always XX sometime year some there start you contracts, maybe won we’re that can XX in contract have some in up first don’t there you in might and year, in. feel good, many you then and we ‘XX, over or then close to people you’ve so go you in XXXX, in summer the people And next contracts the then enough people. that to and got support

the ‘XX, bottom optimistic over new we the kind we’re But we map. think we’ve excited line very and look of haven’t is added that and end when can that pipeline really won’t we it’s August. we until we’re September, all I the the schools see schools So that of about about add, yet ‘XX, that at added think we really impact

about a we So a really Healthcare. we’re main why QX QX. reason good that’s the talk have think Healthcare That’s having great going to for we

Bill Sutherland

XQ capital repurchased on through Got have it. you Brad, guys shares And then end X.X the of allocation, million or...

Kevin Miller

No, through to-date.

Bill Sutherland

Through okay. to-date,

Kevin Miller

Through to right. date,

you know want to our to you. So happy always get be I it like I’ll give – count, share if you to

Bill Sutherland

Absolutely. Yes.

Kevin Miller

of as is and dilutive X,XXX,XXX. count share shares, today, without our So this is

without shares. were shares QX the share And shares. about XXX,XXX as in that’s today dilutive our So of dilutive count

Bill Sutherland

you... Wait,

Kevin Miller

me Well, say just so confused. not let you’re

end today, Q, at dilutive without me – of expect like well of file the me you let get footnote know because to I to I’ll is give X,XXX,XXX some day share the on, confusion, QX flip As additional hold which to our those, to let the our shares count here. but you I just as the

diluted X,XXX,XXX. – includes shares of share our QX. our for So QX for count dilutive average that XXX,XXX And was share

Bill Sutherland

Okay. understand I

an the at you’re big And point? just Okay. is No, authorization opportunistic kind understand what in this I posture then of you’re saying. how

Kevin Miller

left $XX.X purchases. million for potential we As have of today,

Brad Vizi

constrained here business not level out that in a we’re the and think the one brought the that, on and high we that whatsoever to confidence enhancing building Yes, of add we’re increasingly filled capital activity I’d thing the have that and we they’re are and Bill, I is teams have and generating.

We the few of last the bolt-on RCM part have obviously We flow. materially we of cash cash grow anticipate can job we converting to feel actively flow we free like continue that done over generate platform. as opportunities to significant years. evaluate So a amounts good

So in ones with capital exclusive. of target, decision we terms mutually high-return the like they’re the and is stock kind levels, like the of that What – we make It’s at of projects it’s current tree do to relatively straightforward. move trading the the not we’ll kind sense, to forward.

We have capital deploy sense. plenty of to it capacity where makes

Bill Sutherland

it. Got

Okay, thanks, guys. Appreciate the color.

Operator

Private Alright. Investor now it And up, next a line. the Kelly, have we like Frank on looks

Unidentified Analyst

you, Brad? you mooning. Hey, How are are Kevin? gentlemen. How Good

Kevin Miller

Good.

Brad Vizi

Hi, Frank.

Unidentified Analyst

around say think turned Great. was at be – you at million the pretty to million on like then looks up it I be we it’s line, DSO? save what I cash. what’s in incredible. got our on look collecting We I there? we’ve looking the to DSOs considerably And have about I would guys it interest $X.X and our that? that could AR, interest expense increased versus are in used. do $X And year-over-year, And that they’ve happening line do think What

Kevin Miller

up QX level to mean are I accustomed last X that Sure. the in the certainly above been years. DSOs definitely a we’ve for and

As the you I see QX quarter. reasons. a can year. know, all door take cash little out to lot sometimes we pause get the of they in And spike then the calendar see Frank, in often of because kinds a end they usually push just first at clients our the a We think for fluctuate of

higher than And first not to But higher they’re frankly, quarter. a would we than them. unusual it’s a like the that, they’re to see what see you expect see than think QX going lot I’d I So I in tell spike forward. to in

But at when and we XXXX, the quite they expect were of last year, come down. them the look good. we good to QX if I think not are those

debt of trade-off is no the the obviously EPS DSOs assuming versus is increase little – debt, obviously and all repurchase bit expense. a decline driver DSO terms a that and in the obviously, revenue, would of decrease in in day concerned, the to interest But expense main us leverage take of As help far we that our program, decrease our the interest will having [indiscernible]. will help share will which big obviously, and count a as ratio long

Brad Vizi

to a relative interest be of reasonable or significant Frank, Yes, sort the power like to kind point just to anticipate expense after-tax $X than on any earnings of fine don’t much We expenses million. leverage under our more interest anything don’t is assumptions, we put see that.

great a our have bank. We relationship with

So It taken. where – is finance but The as from team your in anticipate well point is improve we on cash opportunity it. quarter. anyways. But at. good a flow our would have seasonally wasn’t collections to also DSOs QX there’s free best We we’re

Unidentified Analyst

Great. you it. I’m sure are Great. guys Great. on

question, quarter. The of some a light other on shed you related was the which this of What that extra gain could of one-off sale $XXX,XXX to? as kind assets,

Kevin Miller

and to the the because which more I quarter, think a funds cash two-thirds And last That the that paid So And portion our amount a the gain like We will it balance it of collection. is aware, done, the deals smaller with out there as comes recognize escrow until last Systems was this it or matter accounting recognized that. funds. was then collecting a the associated We was you sold collected escrow – Canada the is were that – you’re Group maybe. we was no in. third funds and in us some I’m it sure of was us. was on don’t Power some escrows of one-third, that escrow was fourth a return in that just XXXX of the there’s That amount year. quarter what the year,

Unidentified Analyst

Great. Great.

extension was years, on the X Just about right? that

Kevin Miller

which a negotiation, frankly, it Frank, but in months, was was XX – months. rough we got XX which,

Unidentified Analyst

program Great. XXXX? company of throughout Great. the to of Last currently question we on rest remainder – that the that the see pursuing, is capital allocation, the the do continue

Brad Vizi

through Yes, the remainder XXXX. of certainly

out. it’s up as year, right, ruling we field. the a EBITDA, fair that to further but be Look, it. something talk completely or I Like grow not that said, I to opposed said, opens business share we about. strengthen, the to open-minded. just anything to I is of don’t It’s count continues continue think we’re not We I lower. we’re any Like and to continue type that dividend this distribution going anticipate forward, do mean

Unidentified Analyst

up good the Great. work. Appreciate it. Keep

Kevin Miller

you. Thank

Operator

With that, any longer And seeing we no queue. this [Operator in queue. no further questions time, Instructions] at I’m questions gentlemen, have in

Kevin Miller

everyone. Thanks,

Brad Vizi

update We Thank you, your everyone, time look next for our in today. August. forward to

Operator

gentlemen, Ladies does and call. your that Alright. conclude

your joining disconnect again thank now for and may us You lines, you today.

RCM (RCMT) 10 May 232023 Q1 Earnings call transcript