Executive Summary / Key Takeaways

• RCM Technologies is strategically positioned as a diversified professional services firm leveraging secular growth trends in Specialty Health Care (K-12 behavioral health), Engineering (grid modernization, data centers, energy transition, aerospace/defense), and Life Sciences/IT (AI/ML adoption, managed services).
• The company is demonstrating operational maturity and efficiency gains, notably evidenced by a significant reduction in accounts receivable DSOs to approximately 74 days in Q1 2025, contributing substantially to operating cash flow generation ($16.7 million in Q1 2025).
• Despite discrete challenges impacting Q4 2024 profitability, RCMT's underlying business fundamentals are strengthening, with Q1 2025 showing robust revenue growth (17.4% consolidated) and management guiding for at least low double-digit adjusted EBITDA growth throughout fiscal 2025, expecting Q4 2025 to be the strongest quarter.
• Technological differentiation, such as the Thermal Kinetics NEXT program targeting 20% ethanol plant capacity increases and the utilization of the TK Test Center for derisking projects, along with integration of new tools in Aerospace and AI/ML adoption support in IT, provides competitive advantages.
• RCMT maintains a flexible balance sheet, reducing net debt by $12.0 million in Q1 2025 to $18.2 million, and continues to execute its share repurchase program opportunistically, having purchased $3.2 million in Q1 2025 with $39.0 million remaining under authorization.

RCM Technologies: Forging a Diversified Path in Professional Services

RCM Technologies stands as a professional services firm strategically evolving to capitalize on dynamic market opportunities across three core segments: Specialty Health Care, Engineering, and Life Sciences, Data and Solutions. The company's journey, marked by organic growth and strategic acquisitions like the 2018 Thermal Kinetics integration, has shaped it into a provider aiming for a single-source model with a strong vertical focus and a developing global delivery platform. This evolution is critical in an industry landscape characterized by intense competition, where players range from large, diversified conglomerates to highly specialized niche providers.

In the competitive arena, RCMT faces off against giants like Accenture (ACN) and Jacobs Engineering (J) in IT and Engineering, and specialized firms like AMN Healthcare (AMN) and Robert Half International (RHI) in staffing and IT services. While larger competitors often boast greater scale, brand recognition, and R&D budgets (Accenture, for instance, shows significantly higher margins and ROIC), RCMT positions itself as a more flexible, cost-effective alternative with deep niche expertise and the ability to offer integrated solutions across its segments. Its historical performance, including navigating the volatility of the COVID-19 period and subsequent recovery, underscores a resilience built on this diversified approach.

Central to RCMT's strategic positioning is its investment in and leverage of differentiated technology and specialized operational capabilities. In the Engineering segment, the Thermal Kinetics group's patented energy integration design and the recently launched NEXT program exemplify this. The NEXT program specifically targets enhancing ethanol plant capacity by over 20% through intensive process and equipment engineering, promising a compelling 12 to 18-month ROI for clients. The TK Test Center plays a crucial role, enabling the derisking of complex projects like lithium extraction and distillation solvent recovery through pilot campaigns and lab testing, providing a quantifiable advantage in proving simulated chemistry before full-scale deployment. In Aerospace & Defense, the integration of new tools and technologies aims to enhance "intellect and speed-to-market," a critical differentiator against competitors in a demanding sector. The Life Sciences, Data and Solutions segment is actively positioning itself around the accelerated adoption of AI and Machine Learning tools, moving from strategy discussions to system deployments within client bases, and is building out offshore resources to enhance competitiveness, including a new BPO payroll offering. These technological and operational strengths contribute to RCMT's competitive moat by enabling higher-value project work, improving efficiency, and solidifying client relationships through specialized expertise and proven execution.

Performance Reflecting Strategic Momentum and Operational Focus

RCMT's recent financial performance underscores the impact of its strategic focus and operational improvements. Consolidated revenue for the thirteen weeks ended March 29, 2025, increased by a robust 17.4% to $84.473 million compared to $71.939 million in the prior-year period. This top-line growth translated into a 7.9% increase in consolidated gross profit, reaching $21.978 million, marking the highest gross profit achieved over the past 12 quarters.

Breaking down the performance by segment reveals the key drivers. Specialty Health Care revenue grew by 13.4% to $43.283 million, primarily fueled by a 16.7% increase in school client revenue to $37.3 million. This growth highlights the success of deepening existing school partnerships and securing new contracts, particularly in the high-demand behavioral health area. While non-school revenue saw a slight decrease, largely due to a deliberate reduction in services to a lower-margin long-term care client, the overall segment momentum is strong, supported by investments in sales and recruiting infrastructure and the effective use of offshore teams. The segment's gross profit increased by 10.2% to $12.203 million, though the margin slightly compressed to 28.2% due to a mix shift towards lower-margin services like nursing.

The Engineering segment demonstrated exceptional growth, with revenue surging by 36.7% to $32.142 million. This increase was broad-based, including significant contributions from Energy Services (up $3.2 million), Aerospace (up $4.0 million), and Industrial Processing (up $1.4 million). This performance validates the strategic investments made over recent years, particularly in capitalizing on secular trends like grid modernization and the proliferation of data centers. Engineering's gross profit increased by 12.4% to $6.185 million. However, the gross margin decreased to 19.2%, primarily influenced by the mix effect of higher-volume EPC projects with significant pass-through construction labor and the growth of the Aerospace group, which typically operates at lower gross margins but contributes favorably to operating income. Management noted that normalizing for construction labor pass-through, the Engineering gross margin would have been approximately 22.7%.

Life Sciences, Data and Solutions revenue decreased by 11.7% to $9.048 million, attributed mainly to the timing of large projects and a strategic deemphasis of legacy staffing business. Despite the revenue decline, the segment's gross profit margin improved significantly to 39.7% from 37.0%, reflecting a deliberate emphasis on higher-margin project work and managed services. Operating income for this segment saw a notable increase, benefiting from a decrease in SG&A expenses driven by efficiency efforts.

Consolidated Selling, General and Administrative (SGA) expenses increased in absolute terms to $14.971 million but decreased as a percentage of revenue, indicating improved operating leverage as the top line expands.

Liquidity and cash flow generation also showed significant improvement. Operating activities provided $16.660 million in cash during Q1 2025, a substantial increase from $6.426 million in the prior-year period. This surge was largely driven by a $9.558 million decrease in accounts receivable, a direct result of concentrated collection efforts. The company's DSOs improved significantly from approximately 92 days in Q4 2024 to about 74 days in Q1 2025, moving closer to management's goal of under 80 days by the end of fiscal 2025.

The balance sheet remains flexible, with borrowings under the Revolving Credit Facility decreasing to $23.414 million as of March 29, 2025, from $34.967 million at the end of fiscal 2024. This resulted in increased availability for additional borrowings, standing at $34.3 million. The company was in compliance with all debt covenants and believes it has sufficient liquidity for at least the next 12 months.

Outlook and Strategic Trajectory

Management's outlook for fiscal 2025 is optimistic, projecting continued momentum and financial growth. The core guidance calls for at least low double-digit growth in adjusted EBITDA throughout the year, with the expectation that the fourth quarter will be the strongest. This confidence is rooted in the strengthening business internals and the alignment of RCMT's service offerings with robust secular demand across its key markets.

In Specialty Health Care, the significant pipeline of new school contracts for the 2024-2025 school year, coupled with deepening penetration in existing districts and the potential acceleration from international nurses, is expected to drive school revenue growth in the neighborhood of 20% for the school year ending June 2025. The HIM division and corrections business also present avenues for continued expansion.

The Engineering segment is poised for sustained strong performance, propelled by multi-decade themes. The execution of multiyear preferred partner agreements in Energy Services, the growing demand related to grid modernization and data centers, and the expansion in Europe and Puerto Rico provide a clear runway. The Process & Industrial group's NEXT program, with its potential for significant ethanol plant capacity increases and interest from other plants, along with progress in lithium and SAF projects, adds further growth catalysts. The Aerospace & Defense group's aggressive ramp-up in headcount, revenue, and EBITDA, driven by new program wins and multiyear contracts, is expected to continue through 2025 and beyond.

In Life Sciences, Data and Solutions, the focus on higher-margin managed services, adaptation to AI/ML deployments, expansion in life sciences manufacturing, and the build-out of offshore capabilities are expected to drive revenue expansion and new client attainment, offsetting the deemphasis of legacy business and project timing fluctuations seen in Q1 2025.

While the path forward is promising, RCMT operates within a competitive and sometimes volatile environment. Risks include the cyclical nature of the markets served, potential impacts from changes in healthcare regulations, customer concentration (two customers in Specialty Health Care accounted for 21.1% and 13.0% of Q1 2025 revenue), and the ability to attract and retain qualified personnel. Litigation and claims, such as the specific Engineering project dispute with potential liability exceeding insurance coverage, also pose potential financial risks. Discrete events, like those impacting Q4 2024 results (canceled order, rework, high medical costs, lawsuit settlement), can introduce quarterly variability. However, management emphasizes efforts to insulate the business and leverage secular trends to mitigate macroeconomic sensitivity.

The company's capital allocation strategy remains focused on maintaining financial flexibility while returning value to shareholders. The ongoing share repurchase program, with $39.0 million available as of March 29, 2025, signals a commitment to reducing share count, which management believes enhances the compounding of returns.

Conclusion

RCM Technologies is executing a strategic transformation, moving beyond a collection of disparate units to function as a more integrated and operationally mature professional services firm. The company is effectively aligning its diversified service offerings with powerful secular growth trends in key vertical markets, particularly K-12 behavioral health, energy infrastructure modernization, and the evolving aerospace and IT landscapes. Recent financial results, especially the strong top-line growth and significant cash flow generation in Q1 2025 driven by operational efficiency improvements like DSO reduction, underscore the positive trajectory. While competitive pressures and the potential for discrete events introduce inherent risks, RCMT's technological differentiators, strategic investments in infrastructure and talent, and management's clear focus on achieving at least low double-digit adjusted EBITDA growth in fiscal 2025 provide a compelling narrative for investors. The company appears well-positioned to continue capitalizing on market opportunities and translating them into improved financial performance.