RCM Technologies, Inc. — Form 10-Q Summary
Reporting period: Thirteen weeks ended April 2, 2022. The filing is for 2022 Q1, although the request metadata identifies 2021 Q1. Unless otherwise noted, amounts below are in millions of dollars; comparative period ended April 3, 2021.
Business context and results
RCM provides engineering, specialty health care, life sciences and information technology services. Revenue is primarily generated from time-and-materials work and staffing. Specialty Health Care was the largest segment in the quarter.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $82.0 | $44.5 |
| Gross profit / margin | $23.4 / 28.6% | $10.9 / 24.4% |
| Operating income / margin | $9.0 / 11.0% | $1.4 / 3.1% |
| Net income / margin | $6.5 / 8.0% | $1.0 / 2.3% |
| Diluted earnings per share | $0.62 | $0.08 |
| Operating cash flow | $2.5 | ($9.1) |
Revenue increased 84.0%. Specialty Health Care revenue rose $31.1 million (146.9%), Engineering rose $5.4 million (37.5%), and Life Sciences and IT rose $0.9 million (10.4%). Management attributed the health-care increase to reopened school clients and strong demand for health-care professionals. Engineering benefited from aerospace and industrial processing work; Life Sciences and IT growth was primarily in Life Sciences.
Gross margin improved as a percentage of revenue, while SG&A increased to $14.1 million from $9.1 million but declined as a share of revenue to 17.2% from 20.5%. The filing does not present EBITDA as a reported metric.
Financial position, liquidity and debt
At April 2, 2022, cash was $0.9 million, accounts receivable net was $58.8 million, current assets were $63.1 million and current liabilities were $35.7 million. Total assets were $84.2 million, total liabilities $54.0 million and stockholders’ equity $30.2 million. Accounts receivable increased $10.5 million from January 1, 2022.
Borrowings under the $45 million revolving facility were $15.3 million, with $27.8 million available, and $1.9 million in letters of credit outstanding. The facility expires August 2023, is secured by company assets and subsidiary stock, and has financial and other covenants. RCM reported covenant compliance. The period’s effective weighted-average borrowing rate, including unused-line fees, was 1.6%.
Operating cash flow was positive $2.5 million, compared with cash use of $9.1 million a year earlier. The current-period result included a $10.2 million use of cash from receivables, partly offset by increases in accrued payroll and income taxes payable. Investing used $0.2 million, principally for equipment. Financing used $1.6 million, including $2.8 million for share repurchases; net line-of-credit borrowings were $1.1 million. Ending cash was $0.9 million.
Material changes, outlook and risks
- Specialty Health Care operating income increased to $6.9 million from $0.9 million; Engineering moved to $1.0 million of operating income from a $0.1 million loss; Life Sciences and IT operating income increased to $1.1 million from $0.6 million.
- Management said it believes liquidity is sufficient for at least the next 12 months and expects to remain in compliance with facility covenants, while cautioning that credit availability is not assured. No specific revenue or earnings guidance is provided.
- Management described continuing uncertainty from COVID-19. Health-care demand could change with school operations or pandemic conditions, and recruiting health-care professionals remains difficult. Field-services access constraints may also affect Engineering and Life Sciences/IT.
- Other risks include customer concentration and collection exposure, labor availability and costs, competition and pricing pressure, economic cyclicality, foreign exchange, regulatory changes, and workers’ compensation and insurance claims. Management noted a client allegation concerning an Industrial Processing system; liability has not been determined, no accrual was recorded, and management believes contractual damages would be capped at $3.3 million.
- RCM accrued $1.9 million for asserted claims generally; it said outcomes could exceed accruals, while not expecting the matters to have a material adverse effect. It also expects to spend $0.5–$1.0 million upgrading or replacing its financial reporting system during fiscal 2022.
- The company repurchased 406,480 shares for $2.8 million during the quarter, at an average $6.84 per share; approximately $7.3 million remained authorized. The filing also describes up to $17.9 million of capacity under an at-the-market program, with no shares sold under it to date.
Important facts for investors to verify
- Resolve the request-period discrepancy: this filing covers Q1 2022, not Q1 2021.
- Check the filing’s tax discussion: the financial statements and tax note report $0.356 million of Q1 2021 income tax expense, while one MD&A passage calls it an income tax benefit.
- Monitor receivable growth, collections and customer concentration alongside the sharp revenue increase.
- Track Specialty Health Care demand, staffing capacity and school-client activity, as well as the status and potential exposure of the Industrial Processing client allegation.
- Review revolving-facility availability, covenant compliance, share repurchases and the expected financial-system upgrade costs.