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RCM TECHNOLOGIES, INC. (RCMT)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue rose 8.3% year over year to $76.9M, but profitability was pressured: GAAP diluted EPS was $0.37 (vs. $0.65 YoY) and adjusted diluted EPS was $0.49 (vs. $0.73 YoY) .
  • Results missed Wall Street consensus: revenue $76.9M vs. $79.0M*, adjusted EPS $0.49 vs. $0.83*, and adjusted EBITDA $6.3M vs. $10.0M*; management attributed the miss to discrete items in Engineering and elevated SG&A (medical plan and legal settlement) . Values retrieved from S&P Global*.
  • Segment mix: Specialty Health Care strength (school revenue $34.9M, +17% YoY) and Life Sciences gross margin at 40% offset unusually weak Engineering margins (19.7%) due to a canceled industrial order and aerospace rework (~$0.9M GP impact) .
  • Operating cash flow in Q4 was -$1.6M; DSOs improved to 92 in Q4 with a target of <80 by end of FY2025; management expects low double‑digit adjusted EBITDA growth each quarter in 2025 and a normalized effective tax rate below ~27.5% .

What Went Well and What Went Wrong

What Went Well

  • Specialty Health Care growth and pipeline: school revenue rose to $34.9M in Q4 2024 (from $29.8M YoY), with deepening district partnerships and robust behavioral health demand; “we are witnessing a resumption of growth in hours” .
  • Life Sciences, Data & Solutions margins and managed services: Q4 gross margin reached 40.0%; division exceeded gross profit and NOI targets and secured new managed service renewals .
  • Engineering backlog and strategic positioning: Energy Services advancing U.S. grid modernization and European EPC awards; teaming agreement with major construction company and expanding German client base .

What Went Wrong

  • Engineering margin compression: Q4 Engineering gross margin fell to 19.7% (27.0% YoY) driven by a mid‑project industrial order cancellation and aerospace technical publications rework, reducing Q4 gross profit by ~$0.9M .
  • Elevated SG&A: abnormal self‑insured medical costs ($1.25M above normal) and California wage class action settlement/legal fees ($0.45M) increased Q4 SG&A .
  • Tax rate headwind: FY2024 effective tax rate ~34% (abnormally high due to permanent differences and deferred tax adjustments), depressing GAAP EPS; management expects normalization below ~27.5% in FY2025 .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$69.2 $60.4 $76.9
Gross Profit ($USD Millions)$20.0 $17.8 $21.6
Gross Margin (%)28.9% 29.6% 28.0%
GAAP Operating Income ($USD Millions)$5.8 $4.4 $6.3
GAAP Diluted EPS ($USD)$0.47 $0.35 $0.37
Adjusted Diluted EPS ($USD)$0.56 $0.44 $0.49
Adjusted EBITDA ($USD Millions)$7.2 $5.6 $6.3

YoY Comparison (Q4 2023 → Q4 2024)

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$71.0 $76.9
Gross Profit ($USD Millions)$21.6 $21.6
Gross Margin (%)30.5% 28.0%
GAAP Diluted EPS ($USD)$0.65 $0.37
Adjusted Diluted EPS ($USD)$0.73 $0.49
Adjusted EBITDA ($USD Millions)$8.9 $6.3

Segment Breakdown (Q4 2024 vs. Q4 2023)

SegmentRevenue ($USD M) Q4’23Revenue ($USD M) Q4’24GP ($USD M) Q4’23GP ($USD M) Q4’24GM (%) Q4’23GM (%) Q4’24
Specialty Health Care$36.7 $41.0 $11.0 $12.5 30.0% 30.6%
Engineering$22.7 $26.3 $6.1 $5.2 27.0% 19.7%
Life Sciences, Data & Solutions$11.6 $9.6 $4.5 $3.9 38.7% 40.0%
Consolidated$71.0 $76.9 $21.6 $21.6 30.5% 28.0%

KPIs

KPIQ3 2024Q4 2024
Days Sales Outstanding (DSO)114 (prior reference) 92
School Revenue ($USD M)$20.2 (Q3 Health Care) $34.9
Non-school Revenue ($USD M)$6.4 (Q3) $6.2 (Q4)
Operating Cash Flow ($USD M)($4.3) (Q3) ($1.6)
Borrowings under Line of Credit ($USD M)$30.5 (Q3) $35.0 (Q4)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA growth (QoQ)FY2025Low double‑digit growth expected qualitatively (platform trajectory) “Grow adjusted EBITDA low double digits every quarter; if not, failed quarter” Clarified, reiterated target
Effective Tax RateFY2025N/AExpect below 30%, normal ~26.5%–27.5% (vs. FY2024 ~34%) Lowered (normalize)
DSOsFY2025 YEN/ATarget <80 by end of FY2025 Introduced DSO target
Engineering Gross Margin RangeOngoing24–28% typical Reaffirmed 24–28% (Q4 was atypically low at 19.7%) Maintained range
Next UpdateQ2 2025N/ANext call in May 2025 New timing disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
K‑12/Behavioral Health demandExpanding districts; pipeline >20; school revenue growth target ~20% for 2024–25; efficiency, recruiting builds School revenue $34.9M; behavioral health demand cited; deeper district penetration Strengthening
Engineering – Energy Services/EPCRobust results, backlog solid; U.S./Puerto Rico; evaluating LatAm/EU partnerships Grid modernization, data center demand; EU EPC awards; teaming with major constructor Expanding
Life Sciences/Data & HCMStructural profitability improvement; managed services; exceeding quotas 40% GM; exceeded GP/NOI targets; offshore delivery/cost tools; new managed service renewals Improving margin mix
Aerospace & DefenseHiring acceleration; new multiyear awards; aftermarket recovery expected +20% Q4 headcount; weekly run-rate +$65k; multi‑year contracts gaining traction Acceleration
Cash flow/DSOsExpect stronger 2H; focus on DSOs; Q3 cash used DSOs improved to 92; two large AR issues resolved in Q1 2025; OCF negative but improved sequentially Improving working capital
Regulatory/legalN/ACalifornia wage class action settlement increased SG&A (~$0.45M) One‑time headwind
Tax rateN/AFY2024 ETR ~34% (abnormal); expect <30% next year Normalizing in FY2025
AI/ML client initiativesN/AHCM shift to AI/ML for process automation expected in 2025 Emerging opportunity
Macro/governmentPositive read‑throughs to infrastructure/defense in prior calls Limited direct impact from headline risks; potential tailwind from workforce overshoot Neutral to positive

Management Commentary

  • “Though our profitability in Q4 was a disappointment, there is a clear delineation of discrete items that materially impacted the quarter and are not indicative of earnings power.” – Bradley Vizi .
  • “These 2 items caused an approximate $900,000 reduction in gross profit in Q4.” – Kevin Miller (on Engineering cancellation and aerospace rework) .
  • “Our goal for DSOs is to get to under 80 by the end of fiscal 2025.” – Kevin Miller .
  • “We strive to grow our adjusted EBITDA low double digits every quarter… if we don’t, then it’s a failed quarter.” – Kevin Miller .
  • “It should be well below 30% [effective tax rate]… the midpoint of 26% to 29% is a pretty good guess.” – Kevin Miller .

Q&A Highlights

  • Tax rate dynamics: FY2024 ETR ~34% driven by permanent differences/deferred tax true‑ups; expectation to normalize below ~27.5% in FY2025 .
  • Engineering discrete impacts: ~$$0.9M gross profit reduction from a canceled process equipment order and aerospace technical publications rework; both lowered revenue and margins .
  • Macro exposure: No direct impact from headline government IT reductions; potential future tailwind as workforce reductions overshoot and contractors back‑fill .
  • 2025 cadence: Management reiterated low double‑digit adjusted EBITDA growth per quarter as a scorecard objective .
  • Working capital clean‑up: Two large receivable balances (school ~$6M; LS/IT client ~$3.8M) were cleaned up in Q1 2025; DSOs targeted <80 by year‑end .

Estimates Context

  • Q4 2024 vs. Consensus: Revenue $76.9M vs. $79.0M*; Adjusted EBITDA $6.3M vs. $10.0M*; Adjusted EPS $0.49 vs. $0.83* – significant miss, driven by Engineering discrete items and elevated SG&A . Values retrieved from S&P Global*.
  • Q3 2024 vs. Consensus: Revenue $60.4M vs. $60.4M*; Adjusted EPS $0.44 vs. $0.44* – in line . Values retrieved from S&P Global*.
  • Implications: Street models likely to lower near‑term Engineering margin assumptions and SG&A run‑rate, while maintaining 2025 recovery on normalized tax rate, DSOs improvement, and segment pipeline .

Q4 2024 Actual vs. Consensus

MetricActualConsensus*Surprise
Revenue ($USD Millions)$76.9 $79.0*Miss
Adjusted EBITDA ($USD Millions)$6.3 $10.0*Miss
Adjusted Diluted EPS ($USD)$0.49 $0.83*Miss

Values retrieved from S&P Global*.

Key Takeaways for Investors

  • Q4 miss was largely event‑driven: canceled Engineering order and aerospace rework (~$0.9M GP impact) plus abnormal SG&A created an earnings air‑pocket; these are not indicative of steady‑state earnings power .
  • Health Care momentum and margin stability provide a buffer: school revenue strength and 28–30% target margins underpin 2025 visibility as district penetration deepens .
  • Engineering remains a multi‑year growth vector: grid modernization, data center demand, and EU EPC wins support backlog and margin normalization toward 24–28% range .
  • 2025 scorecard: management committed to low double‑digit adjusted EBITDA growth each quarter, normalized ETR below ~27.5%, and DSOs <80 by year‑end—key checkpoints for monitoring execution and potential re‑rating .
  • Working capital/cash flow: sequential improvement in DSOs and resolution of two large AR balances set up better cash conversion vs. Q4’s -$1.6M OCF; watch AR discipline and borrowing line usage ($35.0M in Q4) .
  • Near‑term trading: expect estimate resets post‑Q4 miss; catalysts include May update, Engineering margin recovery, continued school ramp, and any MSA/managed services wins in Life Sciences/HCM .
  • Medium‑term thesis: diversified services platform across Health Care, Engineering, and Life Sciences/HCM with improving mix and international traction; focus on execution against margin ranges, DSOs, and segment‑specific pipelines .