RCM Technologies, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2016 Q2, but the filing covers the 13 and 26 weeks ended July 1, 2017, compared with periods ended July 2, 2016. The filing was signed August 10, 2017. RCM provides engineering, information technology, and specialty healthcare services.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $45.5 million | $45.4 million | $91.9 million | $92.6 million |
| Gross profit / margin | $12.1 million / 26.6% | $12.1 million / 26.7% | $23.9 million / 26.0% | $24.8 million / 26.8% |
| Operating income / margin | $0.8 million / 1.9% | $1.5 million / 3.4% | $1.9 million / 2.1% | $3.3 million / 3.6% |
| Net income / diluted EPS | $0.2 million / $0.02 | $0.9 million / $0.07 | $0.7 million / $0.06 | $1.9 million / $0.15 |
| Operating cash flow | Not separately presented for the quarter | $5.3 million | $7.7 million |
For the first half, cost of services rose to 74.0% of revenue from 73.2%; SG&A declined slightly to $20.4 million from $20.6 million. A $0.8 million charge for increased contingent consideration reduced reported operating income. The effective tax rate was 55.7%, versus 39.2% a year earlier; the company attributed the increase primarily to the nondeductible contingent-consideration adjustment. Excluding that item, the reported first-half effective rate was 37.9%.
Balance sheet and liquidity
- At July 1, 2017, cash was $0.4 million, total assets $65.6 million, and stockholders’ equity $32.2 million.
- Line-of-credit borrowings were $10.1 million, down from $14.3 million at December 31, 2016. The $35 million revolving facility expires December 11, 2019; availability was $24.1 million, with $0.8 million of letters of credit outstanding. The effective interest rate, including fees, was 2.5%. RCM reported compliance with all covenants.
- First-half investing cash use was $0.6 million, mainly property and equipment purchases; financing cash use was $4.6 million, including $4.2 million of net credit-line repayments, $0.4 million of share repurchases, and $0.3 million of contingent-consideration payments.
- Current assets were $49.0 million and current liabilities $22.5 million. Transit payables exceeded transit receivables by $2.2 million.
Material changes and management commentary
- First-half revenue decreased 0.8%. Engineering revenue rose 6.4% and Specialty Health Care rose 11.0%, while Information Technology revenue fell 27.6%, mainly because large client projects declined and were not replaced.
- Information Technology’s first-half operating result shifted to a $0.1 million loss from $0.6 million of income. Specialty Health Care operating income fell to $0.8 million from $1.2 million. Engineering operating income improved to $1.9 million from $1.5 million.
- Management described demand as sensitive to economic conditions and client spending, with significant competition and pricing pressure. It cited hiring and retention, customer concentration and relationships, acquisition integration, foreign-exchange exposure, litigation, and staffing-related claims among the risks. Management said its resources should cover normal obligations for at least the next 12 months; it provided no specific earnings or revenue guidance.
- The company acquired RAF Services in April 2017; $0.1 million of consideration was allocated to goodwill. AHP, acquired at year-end 2016, broadened Chicago healthcare staffing. Estimated contingent payments outstanding at July 1 totaled $1.8 million, subject to forecast-based estimates and potential variation.
- RCM expected to review replacement or upgrade of its older SAP financial reporting system during fiscal 2017 and estimated costs of $1 million to $2 million; timing and final cost remained uncertain.
- Asserted legal claims sought approximately $1.5 million in damages; RCM had accrued $0.5 million. The filing notes outcomes could adversely affect financial position, liquidity, or results. Management reported disclosure controls effective and no material change in internal control over financial reporting.
Investor verification points
- Confirm the intended reporting year: the supplied metadata says 2016 Q2, while this filing is for Q2 2017.
- Track whether the decline in Information Technology project revenue continues and whether replacement work restores segment profitability.
- Assess the recurring and cash impact of acquisition earnouts, especially the $0.8 million remeasurement charge and remaining estimated payments.
- Monitor operating cash generation, receivable collections, facility availability, and compliance with lending covenants.
- Follow the legal claims, tax examinations, and planned SAP system review, including any revised costs or timing.