Business context and reporting period
RCM Technologies, Inc. provides engineering, specialty healthcare, and information technology services. This Form 10-Q covers the 13 weeks ended April 3, 2021, compared with the 13 weeks ended March 28, 2020. The request metadata says “2020 Q1,” but the filing is for the first quarter of fiscal 2021.
Financial results and liquidity
| Metric | Q1 2021 | Comparable 2020 period |
|---|---|---|
| Revenue | $44.5 million | $45.0 million |
| Gross profit / margin | $10.9 million / 24.4% | $10.8 million / 24.1% |
| Operating income (loss) | $1.4 million | ($7.8 million) |
| Net income (loss) | $1.0 million | ($5.9 million) |
| Diluted EPS | $0.08 | ($0.45) |
| Operating cash flow | ($9.2 million) | $0.9 million |
Revenue declined 1.1%. Gross margin improved slightly, while SG&A fell to $9.1 million from $10.2 million. The prior-year operating loss included an $8.0 million receivables write-off and related arbitration fees; there was no comparable charge this quarter. The improvement in reported earnings therefore reflects both lower SG&A and the absence of that unusual prior-year expense.
Operating cash use was driven principally by a $9.1 million increase in accounts receivable, which the Company attributed partly to higher revenue versus the prior quarter and invoice-approval delays at certain customers. Cash was $0.7 million at quarter-end. Line-of-credit borrowings rose to $22.0 million from $11.9 million; the $45.0 million facility had $21.1 million of additional availability, with $1.9 million in letters of credit outstanding. The weighted-average borrowing rate, including unused-line fees, was 2.4%. The Company reported covenant compliance.
At April 3, 2021, total assets were $77.8 million, total liabilities $54.8 million, and stockholders’ equity $22.9 million. Current assets were $54.1 million and current liabilities were $27.8 million. Accounts receivable, net, was $45.3 million, up from $36.0 million at January 2, 2021.
Material changes and segment results
- Engineering: Revenue rose 2.1% to $14.5 million, but gross margin declined to 22.2% from 27.9%, reflecting lower utilization in some groups and a lower-margin aerospace engagement. Operating loss was $0.1 million, versus a $7.8 million loss in the prior period, which included the arbitration charge.
- Specialty Health Care: Revenue fell 4.8% to $21.1 million, primarily due to reduced school-services activity. Gross margin improved to 23.8% from 19.8%, and operating income was $0.9 million versus an operating loss of $0.1 million.
- Information Technology: Revenue increased 3.1% to $8.9 million; gross margin was 29.1% versus 28.8%. Operating income increased to approximately $0.6 million from $0.1 million.
- The Company repurchased 344,172 shares for $0.9 million at an average $2.65 per share under a program authorizing up to $7.5 million; approximately $6.6 million remained available.
Outlook, risks, and contingencies
No specific revenue or earnings guidance was provided. Management expected COVID-19 to continue adversely affecting revenue, gross profit, and operating income through at least the first half of fiscal 2021 and likely beyond; the financial impact could not be reasonably estimated. The Company cited school operating patterns, limits on access to client sites, economic conditions, staffing availability, customer concentration, collections, competition, and workforce and regulatory matters as risks. It said it believed it could meet liquidity needs for at least 12 months, while noting that it relies at times on its revolving facility for daily liquidity.
The Company recorded no goodwill or intangible-asset impairment after reviewing the effects of COVID-19, but noted that further impacts could change estimates. It had accrued $1.8 million for asserted claims, including a $1.7 million California travel-nurse wage-and-hour settlement expected to be paid in fiscal Q3 2021. Estimated contingent acquisition payments totaled $2.9 million, subject to uncertainty. Management also estimated a future SAP accounting-system upgrade or replacement could cost $0.5 million to $1.0 million, with timing undetermined.
Management concluded disclosure controls were effective. It noted potential risks to certain controls from conducting a virtual financial close, but reported no other material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period mismatch: the filing covers Q1 fiscal 2021, not Q1 2020.
- Track receivables growth, collection timing, and the resulting reliance on line-of-credit borrowing and available capacity.
- Assess whether school-related healthcare revenue and Engineering utilization and margins recover as COVID-19 effects evolve.
- Monitor the California settlement payment, other claim exposure, and contingent acquisition-payment estimates.
- Review customer concentration, covenant compliance, and the remaining authorization and subsequent activity under the share-repurchase program.