RCM Technologies’ Mixed Earnings Call: Growth Amid Challenges

RCM (RCMT) ((RCMT)) has held its Q4 earnings call. Read on for the main highlights of the call.

RCM Technologies’ recent earnings call presented a mixed outlook, reflecting both optimism and challenges. The company showcased strong momentum and growth in several business units and strategic initiatives. However, profitability issues in the fourth quarter and increased expenses have impacted the overall financial performance. Despite these hurdles, there is optimism for 2025, with expectations of double-digit growth in adjusted EBITDA.

Strong Top Line Momentum and Strategic Growth

The fourth quarter demonstrated strong top line momentum as RCM Technologies’ strategic initiatives gained traction. Despite the disappointment in Q4 profitability, the internal business structure remains robust, with growth in hours and increasing activity, indicating a positive trajectory for the company.

Health Care and School District Growth

RCM Health Care closed 2024 on a positive note, with a resumption of growth in hours and deeper partnerships with school districts. The surge in demand for behavioral health services in schools has significantly contributed to this growth, highlighting the company’s ability to capitalize on emerging opportunities.

Expansion in Corrections and Aerospace & Defense Sectors

The corrections sector experienced impressive growth in 2024, with further expansion anticipated. Additionally, the Aerospace & Defense division increased its headcount by 20% in Q4 2024 over Q3, resulting in significant increases in revenue and profit, showcasing RCM’s strategic expansion efforts.

Managed Services and Engineering Growth

The managed service contract portfolio exhibited positive growth, exceeding GP and NOI targets. Energy Services also showed robust annual growth, with significant projects and partnerships underway, reinforcing RCM’s position in these sectors.

Profitability Disappointment in Q4

Q4 profitability fell below expectations due to discrete items, including a canceled industrial process equipment order and significant rework needed in the Technical Publications group. These challenges impacted the quarter’s financial performance.

Increased SG&A Expenses

RCM faced increased SG&A expenses due to abnormally high medical costs from a self-insured medical plan, adding about $1.25 million. Additionally, a class action lawsuit settlement contributed approximately $450,000 to SG&A expenses, further straining the company’s financials.

Flat Consolidated Gross Profit and Reduced EBITDA

The consolidated gross profit for Q4 2024 remained flat compared to Q4 2023. Adjusted EBITDA for Q4 2024 was $6.3 million, down from $8.9 million in Q4 2023, reflecting the financial challenges faced by the company.

Forward-Looking Guidance

RCM Technologies provided guidance on its financial and operational performance, reporting a consolidated gross profit of $21.6 million for Q4 2024, flat compared to the same period in 2023, and $79.8 million for the full year, up from $76.7 million in 2023. Despite challenges, the company aims for at least double-digit adjusted EBITDA growth in 2025, with a significantly lower tax rate expected. Strategic growth is anticipated in various divisions, such as Energy Services and Aerospace & Defense, with a strong start to 2025 with school and corrections clients.

In summary, RCM Technologies’ earnings call highlighted a mixed financial performance, with strong growth in strategic areas but challenges in profitability and expenses. The company remains optimistic about 2025, aiming for double-digit growth in adjusted EBITDA and continued expansion in key sectors.