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RCM TECHNOLOGIES, INC. (RCMT)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered broad-based strength: revenue rose 17.4% year over year to $84.5M, adjusted EBITDA increased 14.4% to $7.8M, and adjusted diluted EPS reached $0.63; GAAP diluted EPS was $0.54 .
  • Results beat S&P Global consensus: revenue $84.5M vs. $76.0M*, and Primary EPS $0.63 vs. $0.585*; only two covering estimates, but the beats were meaningful (revenue +11.1%, EPS +7.7%)*.
  • Cash conversion improved sharply: cash from operations was $16.7M, DSOs fell to ~74 days from ~92 in Q4 2024, and net debt was reduced by $12.0M to $18.2M .
  • Management reaffirmed outlook for at least low double-digit adjusted EBITDA growth in FY 2025 and expects Q4 2025 to be the year’s highest adjusted EBITDA quarter, supported by momentum in Engineering and continued school-year growth in Health Care .

What Went Well and What Went Wrong

What Went Well

  • Revenue grew 17.4% YoY to $84.5M, with Specialty Health Care and Engineering contributing most; adjusted EBITDA rose to $7.8M and adjusted EPS to $0.63 .
  • Strong cash generation and balance sheet progress: $16.7M CFO, DSOs down to ~74 days from ~92 in Q4, and net debt reduced by $12.0M to $18.2M .
  • Management tone confident: “internals of our business continue to strengthen… significant reductions in our share count should enhance the compounding of returns” — Executive Chairman Bradley Vizi ; reiterated “at least low double-digit” adjusted EBITDA growth for FY 2025 — CFO Kevin Miller .

What Went Wrong

  • Consolidated gross margin compressed to 26.0% from 28.3% in Q1 2024; Engineering gross margin fell to 19.2% due to pass-through construction mix and growth in lower-gross-margin Aerospace (though op margins remain reasonable) .
  • Life Sciences, Data & Solutions gross profit declined YoY to $3.6M, despite higher margin, reflecting revenue softness; segment GP -5.3% YoY .
  • Engineering margin volatility persists; normalized range reiterated at 22–26%, signaling potential variability quarter-to-quarter .

Financial Results

Core financials (sequential trend: Q3 2024 → Q4 2024 → Q1 2025)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$60.365 $76.912 $84.473
Gross Profit ($USD Millions)$17.841 $21.569 $21.978
Gross Margin %29.6% 28.0% 26.0%
Operating Income ($USD Millions)$4.385 $6.285 $6.583
Adjusted EBITDA ($USD Millions)$5.590 $6.254 $7.780
GAAP Diluted EPS ($USD)$0.35 $0.37 $0.54
Adjusted Diluted EPS ($USD)$0.44 $0.49 $0.63

Year-over-year (Q1 2025 vs. Q1 2024)

MetricQ1 2024Q1 2025YoY Change
Revenue ($USD Millions)$71.939 $84.473 +17.4%
Gross Profit ($USD Millions)$20.367 $21.978 +7.9%
GAAP Diluted EPS ($USD)$0.48 $0.54 +12.5%
Adjusted EBITDA ($USD Millions)$6.220 $6.960 +11.9%
Adjusted Diluted EPS ($USD)$0.53 $0.63 +18.9%

Q1 2025 vs. S&P Global consensus (beats/misses)

MetricConsensusActualSurprise
Revenue ($USD Millions)$76.035*$84.473*+$8.438M (+11.1%)*
Primary EPS ($USD)$0.585*$0.63*+$0.045 (+7.7%)*

Values marked with * retrieved from S&P Global; consensus coverage count: 2 estimates.*

Segment breakdown

SegmentQ4 2024 Revenue ($M)Q4 2024 Gross Margin %Q1 2025 Revenue ($M)Q1 2025 Gross Margin %
Specialty Health Care$41.011 30.6% $43.283 28.2%
Engineering$26.279 19.7% $32.142 19.2%
Life Sciences, Data & Solutions$9.622 40.0% $9.048 39.7%
Consolidated$76.912 28.0% $84.473 26.0%

KPIs

KPIQ4 2024Q1 2025Notes
Cash from Operations ($M)($1.637) $16.660 AR progress drove CFO
DSOs (days)~92 ~74 Expect <80 going forward
Net Debt ($M)$30.2 $18.2 Reduced by $12.0M
Diluted Wtd Avg Shares7,733,142 7,741,481 Ongoing buybacks
Share Repurchases ($M)$0.0 (Q4) $3.188 repurchase; $0.939 retirement “Retired ~300K shares YTD”

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA growthFY 2025At least low double-digit growth Reaffirmed at least low double-digit growth Maintained
Adjusted EBITDA seasonal peakQ4 2025N/AQ4 2025 expected to be highest adjusted EBITDA quarter New / Added
DSOs targetFY 2025Under 80 days by YE 2025 Optimistic DSOs under 80 going forward Maintained (timing improving)
Health Care school revenueSchool Year 2024–2025~20% YoY growth target Momentum intact; strong K-12 ramp discussed Maintained
Effective Tax RateFY 202526%–29% “normal” range post anomalous 34% in FY 2024 Expect well below 30% (midpoint ~27.5%) Lowered from prior abnormal actual

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/ML and technologyLife Sciences engaged new clients; data integrity demand; 99% retention; investing in sales/training Shift toward AI/ML tools for process automation; positioned to help clients Seeing AI/ML deployments; 6 new clients; 40% GP, 23% NOI; building offshore and BPO payroll offering Accelerating adoption and monetization
K-12 and behavioral healthRobust K-12 demand; behavioral health surge; pipeline of international nurses Behavioral health demand highlighted; corrections growth; deepening school partnerships Strong start; expanding in existing schools; new contracts set for next school year; offshore execution supports scale Sustained growth; execution scale improving
Engineering – Energy ServicesAwards in US/EU; pipeline in Puerto Rico; EPC relationships expanding Teaming agreements; Europe office growing; data centers driving demand Multi-year preferred partner agreements; secular themes (grid, interconnect, data centers) driving “unprecedented” growth Momentum building; multi-decade tailwinds
Process & Industrial (Thermal Kinetics)SAF facility proposal; TK “next” ethanol capacity expansion; lithium pilot; equipment orders anticipated NEXT program landed $3.5M equipment order; multiple engineering orders expected; pilots scheduled First NEXT project completing; 20% ethanol capacity increase; uptick in RFQ activity aided by digital presence Commercialization underway; pipeline strengthening
Aerospace & Defensenew multi-year OEM contracts; headcount doubled at new clients; run rate rising EBITDA up; run rate +$65k/week QoQ; broad growth across programs Exceeded plan: +47% revenue YoY; +247% EBITDA contribution; +50 hires QoQ; new clients added Strong ramp; operating leverage
DSOs and cash flowExpect improved cash flow in Q4 and Q1; DSOs normalization discussed DSOs 92 days; path to <80; abnormal receivable balances described DSOs ~74; $16.7M CFO; net debt reduced $12M Material improvement realized
Legal/regulatory—Class action settlement re-mediation increased SG&A ~$0.45M; medical plan costs +$1.25M —One-offs behind; normalization expected

Management Commentary

  • Executive Chairman Bradley Vizi: “The internals of our business continue to strengthen at an increasing rate… significant reductions in our share count should enhance the compounding of returns to the benefit of shareholders” .
  • CFO Kevin Miller: “We are very pleased with our cash flow this quarter, as we generated $16.7 million in cash flow from operations and reduced our net debt by $12.0 million while retiring shares and growing earnings at a healthy clip” .
  • Engineering outlook: secular drivers (grid modernization, interconnect, data centers) are “propelling unprecedented exponential growth and the need for innovative turnkey engineering and EPC solutions” .
  • Life Sciences & Data Solutions: division posted ~40% gross profit and ~23% NOI contribution, with managed services and disciplined SG&A underpinning performance .
  • Health Care: strong K-12 behavioral health demand and offshore execution enabling scale; high renewal rates (>90%) maintained .

Q&A Highlights

  • Macro/policy exposure: Management sees little direct impact from political uncertainty; focus remains on secular drivers and operational resilience .
  • Health Care margins: Slight YoY margin dip driven by mix (nursing vs. behavioral health); expected to be within normal range and improve in Q2 .
  • DSOs and cash flow: DSOs improved to ~74; expect <80 going forward; cash flow recovering with AR normalization .
  • Guidance cadence: Reiterated “at least low double-digit” adjusted EBITDA growth for FY 2025; expect Q4 2025 to be highest adjusted EBITDA quarter .
  • Tax rate: FY 2024 effective tax rate was anomalous (34%); FY 2025 expected well below 30%, with normal range 26–29% .
  • Buybacks/Capital allocation: Retired ~300k shares YTD; disciplined approach to buybacks; maintain financial flexibility .

Estimates Context

  • Q1 2025 beats vs. S&P Global consensus: revenue $84.5M vs. $76.0M* and Primary EPS $0.63 vs. $0.585*, with two estimates each. Post-beat, estimate revisions may trend higher for FY 2025 adjusted EBITDA given management’s reaffirmed growth trajectory*.
  • Segment commentary implies upward bias to Engineering and Health Care estimates (Energy Services secular demand; school-year growth), while Life Sciences remains mixed but margin-accretive*.
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat and improved cash conversion: Strong revenue/EPS/adjusted EBITDA beats, $16.7M CFO, DSOs down materially, and net debt reduced — supports multiple expansion and buyback capacity .
  • Engineering set up for multi-year growth: Grid modernization, interconnect and data center demand underpin backlog and margin normalization to 22–26% over time .
  • Health Care runway: K-12 behavioral health expansion with high renewals and planned offshore scaling points to sustained growth across school-year periods .
  • Life Sciences/Data & Solutions: Mixed top-line but structurally high-margin managed services (≈36–40%) and AI/ML adoption should sustain profitability .
  • FY 2025 outlook constructive: Management reaffirmed at least low double-digit adjusted EBITDA growth, targeting highest EBITDA in Q4 2025; monitor mix/margin normalization and Aerospace operating leverage .
  • Trading implications: Momentum in Engineering/Aerospace plus cash conversion and buybacks are near-term catalysts; watch quarterly margin volatility and pass-through mix in EPC affecting gross margins .
  • Medium-term thesis: Secular exposures (infrastructure, energy transition, data centers, education/behavioral health) and disciplined capital allocation position RCMT for compounding EPS/FCF growth .

Additional Relevant Press Releases (Q1 2025)

  • UKG Ready reseller program launch expands HCM services into SMB market; leverages RCM’s implementation experience to drive services annuity potential .
  • Thermal Kinetics “NEXT” ethanol expansion technology targets >20% capacity increases with short turnarounds; supports Process & Industrial pipeline and equipment orders .