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Operator
Good morning, and thank you for joining us. This is Kevin Miller, Chief Financial Officer at RCM Technologies. I am joined today by Brad Veazey, RCM's Executive Chairman. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates, and assumptions, and information currently available to us. And these matters may materially change in the future. Many of these beliefs, estimates, and assumptions are subject to rapid changes. For more information on our forward-looking statements and the risks, uncertainties, and other factors to which they are subject, please see the periodic reports on Forms 10-K, 10-Q, and 8-K that we file with the SEC, as well as our press releases that we issue from time to time. I will now turn the call over to Brad Veazey executive chairman, to provide an overview of RCM's operating performance during the quarter.
Brad Veazey
Thanks, Kevin. Good morning, everyone. I am pleased to announce strong performance throughout the company as we continue to execute against our long-term strategy. I have always believed that combining leading talent and technology with secular growth markets and excellent capital allocation would lead to superior long-term returns. Furthermore, I believe a virtuous cycle has emerged where the success of RCM as a platform can be leveraged to attract top talent and investment opportunities in a talent and return starved environment. Specifically, many of the participants in the workforce today, especially those with highly specialized skill sets, are passive participants. Often these individuals are not looking for work, but if a particular firm or colleague calls that the cannon holds in high regard, the candidate will engage with alacrity and join the team. When a company reaches a critical mass comprising both tangible and intangible assets, like the ones described above, economic benefits can increase at a compounding rate. As we look to the rest of this year and beyond, we expect our performance to carry forward as we grow our share in existing markets and scale into new adjacencies. Turning to our second quarter, Each unit demonstrated solid execution and performed well in our mostly recession-resistant end markets. Our engineering team continued to gain traction on multiple fronts and exceed our financial expectations for the quarter. Our healthcare services team continues to expand its strategic footprint within the education market and deliver against the backdrop where decades of underinvestment have left the country's social infrastructure in disrepair. Finally, Our life sciences and IT group have made demonstrable progress in its journey toward a managed service and solutions-driven model. In summary, while other companies are falling back to a defensive position, we continue to invest in the team and fill out our leadership ranks. Kevin will cover our financial performance in more detail, but I want to share several financial and operational highlights from the quarter, starting with our financial performance. RCM generated second quarter revenue of $74 million, a 59% increase year over year after adjusting for the power systems Canada sale. Regarding profitability, we also performed well with RCM generating EBITDA of $8.4 million in Q2, representing growth of 281% on a year over year basis. Our finance team under Kevin's leadership continues to raise the bar. with RCM generating record cash flow from operations for the quarter of $18.3 million. I remain enthusiastic about our future, and I'm excited about some of the industry developments we see across each of our end markets and the strategic pursuits within our organization. First, I want to highlight my appreciation for the engine that ultimately drives our performance, which is our people. Our vision and demonstrated success is resonating with folks across the industries we operate in, but more importantly, good people attract good people. Again, a virtuous cycle, enabling us to attract top talent to RCM. In particular, I'm excited to announce that Mark Francis has joined RCM as Senior Vice President of Engineering for our aerospace group. Mark brings a wealth of experience that will help us continue to build out our engineering and manufacturing engineering teams to successfully execute, as well as support new client business pursuits and development. Mark has held leadership positions in operations, manufacturing, engineering, and quality, most recently for Lockheed Martin. Mark has also held general manager roles for Tier 1 manufacturing companies in the aerospace industry. I am excited to have Mark aboard to help accelerate the increasing success of our aerospace team. Staying within the engineering group, Our P&I team is also working on several innovative projects within the biofuel space and is ideally positioned to take advantage of recent developments on the policy front. As many of you know, the path to realizing a more sustainable carbon footprint starts with smart legislation to provide the industry with the necessary incentives. We believe the recent breakthrough in Washington regarding the Inflation Reduction Act is a great start. With investments totaling roughly $369 billion, allocated to energy security and climate change. We believe our expertise in advanced biofuels, ethanol, and carbon capture and conversion technologies affords us a strategic advantage in helping our clients decarbonize the economy. Pivoting to our healthcare services group, the team is doing a tremendous job in profitably scaling the division, even as the organization's size has grown considerably over the past year. Part of the success is attributable to the strategic investments the group has made in its technology systems. For example, the team is revamping its front-end and back-end systems with the new platform enabling the group to deliver solutions to our clients more efficiently and productively than ever before. However, the team's success is also attributable to leveraging its strategic footprint in the primary and secondary education market to expand its solutions offering to clients across the U.S. In particular, I'm excited about the investments the team is making in behavioral health and special education. As we expand our footprint, it has become clear that a holistic solution is desperately needed to address the education industry's growing talent shortage. According to the U.S. Center of Education Statistics, approximately 14% of all public school students receive special education services during the 2019-2020 school year. Unfortunately, schools nationwide can't find enough special education teachers to fill the vacancies needed to serve this cohort of children. I am confident that the creative solutions we will be able to deliver for our clients will help address this growing pain point in school districts across the country. Finally, our life sciences team continues to expand its managed service contract base. We have secured multi-year deals with select clients and have several contracts we are bidding on that we remain very excited about. In parallel with these efforts, the team continues to make strategic investments across its leadership ranks to ensure we have the bandwidth to take advantage of all opportunities in front of us. I am also excited to share that the group is expanding the breadth of its offerings by bolstering our expertise in data analytics and other emerging technologies. I'm looking forward to sharing more updates related to these initiatives in the future. In closing, our team executed well during the first half of 2022. Despite the macroeconomic headwinds we've been all reading about in the newspapers, we anticipate our progress to remain unabated due to our strong culture and robust secular growth tailwinds driving each of our end markets. I want to thank all of RCM employees for a job well done. Your unwavering commitment to delivering value to our clients day in and day out has put all of RCM stakeholders firmly on offense. I'm excited about what the future holds for our organization, and I look forward to sharing more updates as the year progresses. Now I will turn the call back to Kevin to discuss the Q2 2022 financial results in more detail.
Operator
Thank you, Brad. Regarding our consolidated results, revenue for the quarter was $74.3 million, growing over 25 million on a year-over-year basis. Adjusted EBITDA in Q2 2022 was 8.4 million, representing about a $6 million increase on a year-over-year basis. Gross profit came in at 21.6 million during the quarter, about a 77% year-over-year increase. Given robust cash flow generation from operations of 20.8 million during the first half of 2022, we were able to pay down the remaining balance on our revolving credit facility, and now we are debt-free. Turning to our healthcare segment, the group generated revenue of $43.4 million in Q2 2022, which represents an 89% increase year-over-year. The performance was broad-based, and we remain excited regarding several growth initiatives the team is engaging in within the K-12 education and market. Turning to our life sciences and information technology segment, the team continues to execute across each of its practice groups and demonstrated solid year-over-year growth in revenue and profitability. Regarding revenue, we generated about 10 million in Q2 2022 compared to 9.1 million in Q2 2021. We believe that as the group expands its managed service contract base in the future, the group's revenue base will continue to become stickier and more profitable. And finally, turning to our engineering segment, we continue to see vigorous activity across our client base and the respective end markets. After adjusting for the sale of our Canada Power Systems offices in Q3 of 2021, our engineering Q2 2022 revenue of $20.9 million grew by 41% as compared to the adjusted Q2 2021 engineering revenue of $14.9 million. Our engineering units performed well during the quarter, with our aerospace and process and industrial groups leading the way. As mentioned, we are very excited about what the future holds for our process and industrial group. They continue to gain traction with the sustainable fuels market and are ideally suited to address the growing demand for decarbonization technologies. Turning our attention to the second half of the year, I'll echo Brad's earlier comments that we remain confident in the demonstrable progress we've made and anticipate our strong operating performance will carry forward into the back half of the year. This concludes our prepared remarks. At this time, we will open the call for questions.
Brad
Okay, if you would like to... If you would like to...
spk00
All right, ask a question. Please press star 1 on your telephone keypad. Again, to ask a question, press star 1 on your telephone keypad. And our first question is going to come from Alex Sargil with B Reilly. Alex, your line is open.
Alex
Thank you. Good morning, gentlemen, and a very nice quarter. Thank you. Good morning. Thank you. You know, what stood out the most to me was that incredibly strong cash flow of $18 million. So maybe if you could talk a little bit about the strength in that and your outlook, you know, for the next six months.
Operator
Yeah, obviously we had a great quarter. I think it was, you know, there's three factors there, right? Obviously we had strong EBITDA. We had, you know, our team, particularly our finance team, did a fantastic job of getting our invoices out quicker than ever and collecting on receivables faster than ever. We had our best DSOs that we've ever had. And then obviously there's some seasonality there that's kicking into the cash flow in terms of we have school closings in Q2, particularly towards the end of Q2. So that gives a little bit of the benefit to the cash flow. So Q2 was an extraordinary cash flow quarter. Going forward, we expect to continue to do a nice job managing the balance sheet. Our DSOs were under 60 for the first time in the history of the company. And frankly, that's our new standard, is keeping the DSOs under 60 days and continuing to manage the balance sheet, continuing to post strong EBITDA, Obviously, we have some seasonality in Q3, which helps from a cash flow standpoint, but we expect to continue to see nice cash flow.
Brad
Okay.
Alex
And then you mentioned the opportunity for a number of new awards in the life sciences segment. Can you expand on that a bit?
Brad Veazey
Yeah. Now, we just won a couple of, in particular, nice multi-year awards, safe to assume in the seven-figure range, primarily in our regulatory and compliance side, but also in our HCM. So naturally, as you pivot that portion of the business for more of a staffing orientation to more of a solutions and managed service orientation position, It could result in higher margins and more predictability, ultimately freeing up our resources to focus on further growth in the business. So, look, we have a few more on the horizon that we're getting close on. So hopefully we'll have further positive update on that front going forward.
Alex
And then if you could, lastly, talk a little bit about the seasonality, especially healthcare segment. Obviously, revenues came in a little bit in 2Q, partly because of seasonality. I suspect there's probably some roll off of opportunistic healthcare opportunities you had kind of during the COVID period. Have we gotten to a stable point where maybe that's going to lessen to some degree that downside? and therefore we're getting closer to sort of a more stabilized sort of run rate level?
Operator
You know, frankly, I think we're pretty much already there. I mean, we'll see what happens in Q3 and Q4. We expect healthcare to post, you know, very good results in Q3 and Q4. Obviously, we have significant seasonality in Q3 for healthcare with July. And, you know, July, basically, almost every school we work with is closed. And then August, you know, Chicago's closed. New York is closed. A lot of our other secondary, you know, schools are closed. Hawaii is open in August. You know, a lot of the California schools, you know, open sort of in the middle of August to the end of August. So we'll see some seasonality there. But as we're sitting here today and having discussions with our school clients, We expect Q4 to be really good. And we don't expect any significant fall off because as some of the COVID revenue is falling off, we're also adding a lot of schools. We've added several new schools for this new school year. So we expect real good results in Q3 and Q4. To give you a little bit more color in terms of like Q2, you know, just to give you an example, like in Q1 for Hawaii, there's 55 school days. In Q2, there's 38. For Chicago, there's, you know, 62 school days. In Q2, there's 45. And then, you know, New York goes from 56 to 51. So when you talk about a little bit of a revenue fall off, you know, yes, there was a fall off from Q1 to Q2. but it's almost entirely related to school days, frankly. When I go back and look at revenue per day, you know, per school day, Q2 versus Q1, you know, they compare very favorably.
Alex
And just to kind of follow up on that answer, traditionally in the third quarter, revenue seems to kind of fall off sequentially 20% to 30%. Given the shift in revenue, sort of contract mix, do you still anticipate sort of that sequential fall off from 2Q to 3Q of 20% to 30%?
Operator
Yeah, that sounds, you know, probably in the right ballpark, you know, probably more towards the higher end, I would say. But, you know, we'll see how things shake out in terms of how the school year starts off.
Brad
Thank you very much. Next quarter.
spk00
Our next question is going to come from Bill Sutherland with Benchmark. Bill, your line is open.
Bill Sutherland
Thank you. Hey, Brad. Hey, Kevin. Kevin, could you give us just a little more detail on the healthcare segment in terms of revenue from education clients and then all other, you know, clients?
Operator
Sure. Let me just give another question while I put my fingertips together.
Bill Sutherland
Yeah, yeah, yeah. Sure, sure. And then I'm kind of interested, since life science really is coming on strong in the IT group, I'm kind of wondering, just rough order of magnitude, what that is as a percent of that line, also maybe as you would define it as managed services as a percent of the IT? Just a rough idea for that.
Operator
Well, life sciences in general runs about... runs around 60% of our total revenue for IT, roughly. It fluctuates from quarter to quarter, obviously, but that's a rough number.
Brad
Okay. The... What was I going to ask you?
Bill Sutherland
The... And the margins are... in healthcare, do they fluctuate much with the seasonality, the direct margin?
Operator
They have in the past, but I think that we're seeing pretty, you know, robust, you know, pricing across all of our healthcare lines, frankly. So, I don't expect, you know, they can always fluctuate a little bit from quarter to quarter. you know, based on a variety of factors, but we don't expect significant fluctuation in Q3 from, you know, from maybe a blend of Q1 and Q2. We may see a little bit of a downturn in Q4 because we do have, you know, some new school contracts coming in at some bill rates that are a little bit lower than what we've seen, you know, in the first half of this year, but I certainly don't expect to see any significant erosion in gross margin in Q3 or Q4. Okay. So getting back to your school question, in Q2, our school revenues were $32.3 million. Our non-school revenue in Q2 was $11.2 million.
Bill Sutherland
Do you happen to have the comp?
Operator
I do. In Q2, we're looking at 15.1 for school revenue and 7.9 in Q2 of 21. Okay. That's helpful.
Bill Sutherland
And then last, I don't know, maybe Brad, maybe Kevin, capital allocation now that you're in a net cash position. Any new thinking on that? what you may want to do?
Brad Veazey
Fair question, Bill. Our framework hasn't changed when it comes to capital allocation. We have a substantive track record. As you know, you've followed us for a while, whether it be in the form of share buybacks and dividends or acquisitions and internal investment. We have a pretty strong ROIC. I think we're pushing 50% at this point. It kind of serves as our North Star, so We look to continue to do more of the same, basically be agnostic in our approach to capital allocation between those four vectors.
Brad
Okay. Thank you both. Okay. It doesn't look like there are any more questions in the queue. Thank you everyone for attending RCM second quarter conference call. We look forward to our next update in November. Okay, this concludes your call. You may now disconnect.
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