RCM TECHNOLOGIES, INC. Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 ended at the high end of expectations with all 3 businesses generating healthy EBITDA growth.
• The platform's high-value capabilities in critical end markets resonate, with synergy among groups growing.
• Progress across each division, with focus on leveraging K through 12 leadership in health care, and strong performance in Life Sciences Data & Solutions, Energy Services, RCM Thermal Kinetics, and Aerospace and Defense Group.
• Committed to innovation, client satisfaction, and sustainable growth, with robust pipelines indicating a promising trajectory.

Segment Performance

• Health Care: In Q4 2023, school revenue was $29.812 million and nonschool was $6.876 million. Q4 2022 school revenue was $24.644 million and nonschool was $11.166 million. Gross profit was essentially flat in Q4 2023 vs Q4 2022, but school revenue after normalizing for COVID grew over 28% Q4 to Q4.
• Life Sciences Data & Solutions: 2023 results showed improvement in revenue, GP, GP percent, NOI, and NOI percent. GP percent improved by 100 basis points, EBITDA contribution improved over 375 basis points. Managed service and turnkey software implementations led growth.
• Energy Services: 2023 revenue and profit targets achieved, exceeding previous year's profit contribution by 66%. Opened an office in Germany, awarded EPC projects, and developed a proprietary digital solution.
• RCM Thermal Kinetics: Has active equipment and engineering contracts in zero carbon chemical manufacturing, etc. New testing lab fully utilized, with plans for a 30-gallon crystallization pilot plan.
• Aerospace and Defense Group: Experienced steady recovery in Q4 2023, expanding teams, and a new service offering for quality and production issues.

Guidance

• Anticipates at least low double-digit consolidated adjusted EBITDA growth in fiscal 2024 compared to fiscal 2023 with a similar quarterly cadence.
• All 3 segments expected to grow, with strong pipelines and backlogs. Balancing growth with investment in the future.

Risks

• DSOs were at 90.7 in Q4 2023, too high, with issues like administrative delays in client payments and WIP being high.
• Seasonality impacts on margins, such as payroll tax increases from Q4 to Q1 affecting gross and net margins.

Q: Expanding on capital deployment, cash shareholder return in form of dividend.

A: Probably not this year, but not off the table, with fewer shares outstanding dividend would be bigger.

Q: Flavor of Q1 expectations.

A: Hoping and planning on showing growth each quarter over prior quarter, like where they are today.

Q: Operational details on engineering segment.

A: Engineering had a contract reduced by 30%, but still have it, Aerospace segment outlook positive with margin profile upside