RCM TECHNOLOGIES, INC. Q2 FY2024 earnings call

• Engineering was the growth leader in Q2, with Energy Services showing robust results in the second quarter, exceeding forecasted revenue and EBITDA, and evaluating cooperation agreements internationally. Process and Industrial was active in 0 carbon chemical production, with lithium project orders and a test center at 100% utilization. - Healthcare division ended the school year strongly, added many new school districts, and expanded operations in the Philippines. - Life Sciences Data & Solutions made continued progress, with structural profitability increase, HCM practice exceeding implementation quotas, the Puerto Rico team completing a quality control project, and strong interest in managed service offerings. - Aerospace and Defense Group had mixed results in Q2 but expected EBITDA increase in the second half, with a 54% increase in new hires in aerospace and expansion of model-based expertise.

Consolidated gross profit for the second quarter of 2024 grew by 6.6% to $20.0 million compared to 2023's $18.8 million. Adjusted EBITDA increased by 10.8% from $6.5 million to $7.2 million. Adjusted diluted EPS rose by 12.0% from $0.50 to $0.56. In segment performance, Engineering gross profit grew by 23.7% in Q1 2024. Life Sciences Data & Solutions gross profit decreased by 17.9%. Healthcare's second quarter gross profit grew by 8.6%. School revenue in the second quarter of 2024 was $30.8 million, a 23.0% increase after removing COVID impact. Year-to-date 2024 school revenue exceeds 83%, and 2023 - 2024 school revenue grew by 24.9% over 2022 - 2023 when COVID-related revenue was removed. There are 15 school districts with over $500,000 in revenue, and the goal is to have over 20 such districts in the 2024 - 2025 school year.

• Anticipate continued strong contribution from engineering and enhanced strength in other divisions in the second half of the year. - Optimistic about low double-digit consolidated adjusted EBITDA growth in the second half of fiscal 2024 compared to fiscal 2023. - Hopeful to sign over 30 new school districts heading into the next year.

• Cyber threats present a risk, requiring significant investment in cybersecurity and IT initiatives. - Project timing can impact business performance, such as the timing of high-margin projects affecting Life Sciences Data & Solutions in Q2. - Dependence on school district penetration and potential disappointment with the number of representatives in schools.

Q: The quarter is solid and bullish, but the EBITDA growth target seems conservative.

A: Kevin mentions that revenue from schools starts slowly and ramps up, so a 10%-ish EBITDA increase is conservative as things can change rapidly.

Q: What's the timeframe and segment for the 54% increase in new hires?

A: Brad states it's relative to aerospace, which was sluggish in the first half but with an improving pipeline.

Q: The dip in Life Sciences Data & Solutions, is it due to project timing?

A: Brad says it's because a high-margin project ended in Q2 last year, with an uptick expected in the back half of 2023.

Q: About school districts in the pipeline, are they signed and ready?

A: Kevin says over 20 are signed, and hopeful for over 30 new ones next year, but penetration can vary.

Q: What drives the increase in SG&A?

A: Kevin says natural cost inflation, cybersecurity investment, and infrastructure for growth; Brad adds thinking of the company as larger and having historically underinvested in infrastructure.