UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
RCM TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | |
| (State or other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. (See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act). (Check one):
| Large Accelerated Filer ☐ | | Non-Accelerated Filer ☐ | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of the Registrant’s class of common stock, as of the latest practicable date.
Common Stock, $0.05 par value,
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES |
| PART I - FINANCIAL INFORMATION |
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| Page |
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| Item 1. |
Condensed Consolidated Financial Statements |
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| Condensed Consolidated Balance Sheets as of June 29, 2024 (Unaudited) and December 30, 2023 |
4 |
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| Unaudited Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 |
5 |
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| Unaudited Condensed Consolidated Statements of Comprehensive Income for the Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 |
6 |
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| Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 |
7 |
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| Unaudited Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 |
8 |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
48 |
| Item 4. |
Controls and Procedures |
48 |
| PART II - OTHER INFORMATION |
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| Item 1. |
Legal Proceedings |
50 |
| Item 1A. |
Risk Factors |
50 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
50 |
| Item 3. |
Defaults Upon Senior Securities |
50 |
| Item 4. |
Mine Safety Disclosures |
50 |
| Item 5. |
Other Information |
50 |
| Item 6. |
Exhibits |
51 |
| Signatures |
52 |
|
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This report and documents incorporated by reference into it may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts but rather are based on current expectations, estimates and projections about our business and industry, and our beliefs and assumptions. Words such as “believes,” “anticipates,” “plans,” “expects,” “will,” “goal,” and similar expressions are intended to identify forward-looking statement. The inclusion of forward-looking statements should not be regarded as a representation by us that any of our plans will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking information is also subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, risks arising from our providing service to the healthcare industry; the impact of and future effects of the COVlD-19 pandemic or other potential pandemics; having a significant portion of our condensed consolidated revenues contributed by a concentrated group of customer during the twenty-six weeks ended June 29, 2024; credit and collection risks; our claim experience related to workers’ compensation and general liability insurance; the effects of changes in, or interpretations of laws and regulations governing, the healthcare industry, our workforce and the services that we provide, including state and local regulations pertaining to the taxability of our services and other labor-related matters such a minimum wage increases; the Company’s expectations with respect to selling, general, and administrative expense; and the risk factors described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023 and Part II, Item 1A “Risk Factors” of subsequent Quarterly Reports on Form 10-Q, including this Form 10-Q.
| ITEM 1. |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 29, 2024 and December 30, 2023
(In thousands, except share amounts)
| June 29, | December 30, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of provision for credit losses of $ on June 29, 2024 and December 30, 2023 | ||||||||
| Transit accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Deposits | ||||||||
| Deferred income taxes, foreign | ||||||||
| Goodwill | ||||||||
| Operating right of use asset | ||||||||
| Intangible assets, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Transit accounts payable | ||||||||
| Accrued payroll and related costs | ||||||||
| Finance lease payable | ||||||||
| Income taxes payable | ||||||||
| Operating right of use liability | ||||||||
| Contingent consideration from acquisitions | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Deferred income taxes, net, foreign | ||||||||
| Deferred income taxes, net, domestic | ||||||||
| Contingent consideration from acquisitions, net of current position | ||||||||
| Operating right of use liability, net of current position | ||||||||
| Borrowings under line of credit | ||||||||
| Total liabilities | ||||||||
| Contingencies (note 15) | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized; | ||||||||
| shares issued or outstanding | ||||||||
| Common stock, $ par value; shares authorized; | ||||||||
| shares issued and shares outstanding at June 29, 2024 and shares issued and shares outstanding at December 30, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, shares at June 29, 2024 and | ||||||||
| shares at December 30, 2023, at cost | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Thirteen and Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 (Unaudited) (In thousands, except per share amounts) |
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of services | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization of property and equipment | ||||||||||||||||
| Amortization of acquired intangible assets | ||||||||||||||||
| Costs associated with potential stock issuance | ||||||||||||||||
| Gain on sale of assets | ( | ) | ||||||||||||||
| Operating costs and expenses, net of gain on sale of assets | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other expense (income) | ||||||||||||||||
| Interest expense and other, net | ||||||||||||||||
| (Gain) loss on foreign currency transactions | ( | ) | ( | ) | ( | ) | ||||||||||
| Other expense (income), net | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Basic net earnings per share | $ | $ | $ | $ | ||||||||||||
| Diluted net earnings per share | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 (Unaudited) (In thousands) |
| Twenty-Six Weeks Ended |
||||||||
| June 29, 2024 |
July 1, 2023 |
|||||||
| Net income |
$ | $ | ||||||
| Other comprehensive (loss) income |
( |
) | ||||||
| Comprehensive income |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 (Unaudited) (In thousands, except share amounts) |
| Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Treasury Stock |
|
|||||||||||||||||||||||||||
| Issued Shares |
Amount |
Shares |
|
Amount |
|
Total |
||||||||||||||||||||||||||
| Balance, December 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Issuance of stock under employee stock purchase plan |
||||||||||||||||||||||||||||||||
| Equity compensation expense from awards issued |
- | - | - | |||||||||||||||||||||||||||||
| Issuance of stock upon vesting of restricted share awards |
( |
) | ||||||||||||||||||||||||||||||
| Retirement of common shares |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Foreign currency translation adjustment |
- | ( |
) | - | - | ( |
) | |||||||||||||||||||||||||
| Net income |
- | - | - | |||||||||||||||||||||||||||||
| Balance, March 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Equity compensation expense from awards issued |
- | - | ||||||||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance, June 29, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Accumulated Deficit |
Treasury Stock |
|
|||||||||||||||||||||||||||
| Issued Shares |
Amount |
Shares |
|
Amount |
|
Total |
||||||||||||||||||||||||||
| Balance, December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Issuance of stock under employee stock purchase plan |
||||||||||||||||||||||||||||||||
| Equity compensation expense from awards issued |
- | - | - | |||||||||||||||||||||||||||||
| Issuance of stock upon vesting of restricted share awards |
( |
) | ||||||||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
- | - | - | |||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance, April 1, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Issuance of stock upon vesting of restricted share awards |
||||||||||||||||||||||||||||||||
| Equity compensation expense from awards issued |
- | - | ||||||||||||||||||||||||||||||
| Common stock issued as contingent consideration |
||||||||||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment |
- | ( |
) | - | ( |
) | ||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Balance, July 1, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Twenty-Six Weeks Ended June 29, 2024 and July 1, 2023 (Unaudited) (In thousands) |
| Twenty-Six Weeks Ended | ||||||||
| June 29, 2024 | July 1, 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Equity compensation expense from awards issued | ||||||||
| Deferred income tax expense | ||||||||
| Change in operating right of use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Net of transit accounts receivable and payable | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accrued payroll and related costs | ( | ) | ( | ) | ||||
| Right of use liabilities | ( | ) | ( | ) | ||||
| Income taxes payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Deposits | ||||||||
| Total adjustments and changes in operating assets and liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Property and equipment acquired | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings under line of credit | ||||||||
| Repayments under line of credit | ( | ) | ( | ) | ||||
| Issuance of stock for employee stock purchase plan | ||||||||
| Retirement of common shares | ( | ) | ||||||
| Changes in finance lease obligations | ( | ) | ( | ) | ||||
| Contingent consideration paid | ( | ) | ||||||
| Common stock repurchase | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| (Decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash financing activities: | ||||||||
| Right of use assets in exchange for lease obligations | $ | $ | ||||||
| Value of shares issued as contingent consideration | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
| 1. | Basis of Presentation |
The accompanying condensed consolidated interim financial statements of RCM Technologies, Inc. and subsidiaries (“RCM” or the “Company”) are unaudited. The year-end consolidated balance sheet was derived from the Company’s audited statements but does not include all disclosures required by accounting principles generally accepted in the United States. These statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to reports on Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended December 30, 2023 included in the Company’s Annual Report Form 10-K for such period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
The condensed consolidated financial statements for the unaudited interim periods presented include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows for such interim periods.
Results for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023 are not necessarily indicative of results that may be expected for the full year or any future period.
Fiscal Year
The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. Both the current fiscal year ending December 28, 2024 (fiscal 2024) and the prior fiscal year ended December 30, 2023 (fiscal 2023) are 52-week reporting years. The fiscal quarters for fiscal 2024 and fiscal 2023 align as follows:
| Fiscal 2024 Quarters | Weeks | Fiscal 2023 Quarters | Weeks |
| March 30, 2024 | Thirteen | April 1, 2023 | Thirteen |
| June 29, 2024 | Thirteen | July 1, 2023 | Thirteen |
| September 28, 2024 | Thirteen | September 30, 2023 | Thirteen |
| December 28, 2024 | Thirteen | December 30, 2023 | Thirteen |
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
| 2. | Use of Estimates and Uncertainties |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
The Company uses estimates to determine a provision for credit losses on its accounts receivable, litigation, medical claims, vacation, goodwill impairment, if any, equity compensation, the tax rate applied and the valuation of certain assets and liability accounts. In addition, the Company reviews its estimated costs to complete a contract and adjusts those costs when necessary. These estimates can be significant to the operating results and financial position of the Company. The estimates are based upon various factors including current and historical trends, as well as other pertinent industry and regulatory authority information. Management regularly evaluates this information to determine if it is necessary to update the basis for its estimates and to adjust for known changes.
The Company has risk participation arrangements with respect to workers compensation and health care insurance. The amounts included in the Company’s costs related to this risk participation are estimated and can vary based on changes in assumptions, the Company’s claims experience or the providers included in the associated insurance programs.
The Company can be affected by a variety of factors including uncertainty relating to the performance of the general economy, competition, demand for the Company’s services, adverse litigation and claims and the hiring, training and retention of key employees.
Fair Value of Financial Instruments
The Company’s carrying value of financial instruments, consisting primarily of accounts receivable, transit accounts receivable, accounts payable and accrued expenses, transit accounts payable and borrowings under line of credit approximates fair value due to their liquidity or their short-term nature and the line of credit’s variable interest rate. The Company does not have derivative products in place to manage risks related to foreign currency fluctuations for its foreign operations or for interest rate changes.
The Company re-measures the fair value of the contingent consideration at each reporting period and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded in earnings in the accompanying consolidated statement of operations.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
| 3. | Revenue Recognition |
The Company records revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. Revenue is recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.
We evaluate our revenue contracts with customers based on the five-step model under ASC 606: (1) Identify the contract with the customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to separate performance obligations; and (5) Recognize revenue when (or as) each performance obligation is satisfied.
The Company derives its revenue from several sources. The Company’s Engineering Services, Life Sciences and Information Technology segments perform consulting and project solution services. The Healthcare segment specializes in long-term and short-term staffing and placement services to hospitals, schools and long-term care facilities amongst others. All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees. The majority of the Company’s revenue is invoiced on a time and materials basis.
The following table presents our revenue disaggregated by revenue source for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||
| Specialty Health Care: | ||||||||||||||||
| Time and Material | $ | $ | $ | $ | ||||||||||||
| Permanent Placement Services | ||||||||||||||||
| Total Specialty Health Care | $ | $ | $ | $ | ||||||||||||
| Engineering: | ||||||||||||||||
| Time and Material | $ | $ | $ | $ | ||||||||||||
| Fixed Fee | ||||||||||||||||
| Total Engineering | $ | $ | $ | $ | ||||||||||||
| Life Sciences and Information Technology: | ||||||||||||||||
| Time and Material | $ | $ | $ | $ | ||||||||||||
| Permanent Placement Services | ||||||||||||||||
| Fixed Fee | ||||||||||||||||
| Total Life Sciences and Information Technology | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| |
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
3. Revenue Recognition (Continued)
Time and Material
The Company’s Health Care segment predominantly recognizes revenue through time and material work while its Engineering and Life Sciences and Information Technology segments recognize revenue through both time and material and fixed fee work. The Company’s time and material contracts are typically based on the number of hours worked at contractually agreed upon rates, therefore revenue associated with these time and materials contracts are recognized based on hours worked at contracted rates.
Fixed Fee
From time to time and predominantly in our Engineering segment, the Company enters into contracts requiring the completion of specific deliverables. The Company has master services agreements with many of its customers that broadly define terms and conditions. Actual services performed under fixed fee arrangements are typically delivered under purchase orders that more specifically define terms and conditions related to that fixed fee project. While these master services agreements can often span several years, the Company’s fixed fee purchase orders are typically performed over six to nine month periods. In instances where project services are provided on a fixed-price basis, revenue is recorded in accordance with the terms of each contract. In certain instances, revenue is invoiced at the time certain milestones are reached, as defined in the contract. Revenue under these arrangements are recognized as the costs on these contracts are incurred. From time-to-time, amounts paid in excess of revenue earned and recognized are recorded as deferred revenue, included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. Additionally, some contracts contain “Performance Fees” (bonuses) for completing a contract under budget. Performance Fees, if any, are recorded when earned. Some contracts also limit revenue and billings to specified maximum amounts. Provisions for contract losses, if any, are made in the period such losses are determined. For contracts where there is a specific deliverable and the work is not complete and the revenue is not recognized, the costs incurred are deferred as a prepaid asset. The associated costs are expensed when the related revenue is recognized.
Permanent Placement Services
The Company earns permanent placement fees from providing permanent placement services. These fees are typically based on a percentage of the compensation paid to the person placed with the Company’s client. The Company guarantees its permanent placements on a prorated basis for 90 days. In the event a candidate is not retained for the 90-day period, the Company will provide a suitable replacement candidate. In the event a replacement candidate cannot be located, the Company will provide a prorated refund to the client. An allowance for refunds, based upon the Company’s historical experience, is recorded in the financial statements.
Deferred Revenue
There was $
| |
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
3. Revenue Recognition (Continued)
Concentration
During the twenty-six weeks ended June 29, 2024, the Company had two customers exceed 10% of consolidated revenue, representing
4. Accounts Receivable, Transit Accounts Receivable and Transit Accounts Payable
The Company’s accounts receivable comprise the following:
| June 29, 2024 | December 30, 2023 | |||||||
| Billed | $ | $ | ||||||
| Unbilled | ||||||||
| Work-in-progress | ||||||||
| Provision for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Unbilled receivables primarily represent revenue earned whereby those services are ready to be billed as of the balance sheet ending date. Work-in-progress primarily represents revenue earned under contracts which the Company contractually invoices at future dates.
From time to time, the Company’s Engineering segment enters into agreements to provide, among other things, construction management and engineering services. Pursuant to these agreements, the Company a) may purchase equipment on behalf of the Company’s customer or engage subcontractors to provide construction or other services; b) typically earns a fixed percentage of the total project value; and c) assumes no ownership or risks of inventory. In such situations, the Company acts as an agent under the provisions of FASB ASC 606 “Revenue from Contracts with Customers” and therefore recognizes revenue on a “net-basis.” The Company records revenue on a “net” basis on relevant engineering and construction management projects, which require subcontractor/procurement costs or transit costs. In those situations, the Company charges the client a negotiated fee, which is reported as net revenue when earned.
Under the terms of the agreements, the Company is typically not required to pay the subcontractor until after the corresponding payment from the Company’s end-client is received. Upon invoicing the end-client on behalf of the subcontractor or staffing agency, the Company records this amount simultaneously as both a “transit account receivable” and “transit account payable,” as the amount when paid to the Company is due to and generally paid to the subcontractor within a few days. The Company typically does not pay a given transit account payable until the related transit account receivable is collected. The Company is typically obligated to pay the subcontractor or staffing agency whether or not the client pays the Company. The Company’s transit accounts payable generally exceeds the Company’s transit accounts receivable but absolute amounts and spreads fluctuate significantly from quarter to quarter in the normal course of business. The transit accounts receivable was $
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
5. Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization, and are depreciated or amortized on the straight-line method at rates calculated to provide for retirement of assets at the end of their estimated useful lives. Computer hardware and software, and furniture and office equipment are typically depreciated over five years. Leasehold improvements are amortized over the shorter of the estimated life of the asset or the lease term.
Property and equipment comprise the following:
| June 29, 2024 | December 30, 2023 | |||||||
| Computer hardware and software | $ | $ | ||||||
| Furniture and office equipment | ||||||||
| Leasehold improvements | ||||||||
| Laboratory equipment | ||||||||
| Less: accumulated depreciation and amortization | ||||||||
| Property and equipment, net | $ | $ | ||||||
The Company periodically writes off fully depreciated and amortized assets. The Company wrote off fully depreciated and amortized assets of $
6. Acquisitions and Divestitures
Future Contingent Payments
As of June 29, 2024, the Company had two acquisition agreements whereby additional contingent consideration may be earned by the sellers: 1) effective September 30, 2018, the Company acquired certain assets of Thermal Kinetics Engineering, PLLC and Thermal Kinetics Systems, LLC, and 2) effective October 2, 2022, the Company acquired certain assets of TalentHerder LLC. The Company estimates future contingent payments at June 29, 2024 as follows:
| Total | ||||
| The four quarters following June 29, 2024 | $ | |||
| Thereafter | ||||
| Estimated future contingent consideration payments | $ | |||
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
6. Acquisitions and Divestitures (Continued)
Future Contingent Payments (Continued)
For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the estimated contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the consolidated statements of operations. During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the consolidated statements of operations.
Estimates of future contingent payments are subject to significant judgment and actual payments may materially differ from estimates. The Company estimates future contingent consideration payments based on forecasted performance and recorded the fair value of those expected payments as of June 29, 2024. Contingent consideration related to acquisitions is recorded at fair value (level 3) with changes in fair value recorded in other (expense) income, net.
Potential future contingent payments for acquisitions after June 29, 2024 are capped at a cumulative maximum of $
7. Goodwill
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations. The Company tests goodwill for impairment on an annual basis as of the last day of the Company's fiscal year or more frequently if events occur or circumstances change indicating that the fair value of goodwill may be below the carrying amount. The Company reviewed industry and market conditions, reporting unit specific events as well as overall financial performance and determined that no indicators of impairment of goodwill existed during the twenty-six weeks ended June 29, 2024. As such, impairment loss on the Company’s intangible assets during the twenty-six weeks ended June 29, 2024 was recorded as a result of such review.
The carrying amount of goodwill as of June 29, 2024 and December 30, 2023 was as follows:
| Engineering | Specialty Health Care | Information Technology | Total | |||||||||||
| $ | $ | $ | $ | |||||||||||
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
8. Line of Credit
On April 24, 2023, the Company entered into a Fourth Amended and Restated Loan Agreement (the “Fourth Amended and Restated Loan Agreement”) with Citizens Bank, N.A., as lender (in such capacity, the “Lender”) and as administrative agent and arranger (in such capacity, the “Administrative Agent”), to amend and restate in its entirety that certain Third Amended and Restated Agreement dated as of the August 9, 2018 (as the same has been amended and modified prior to the date hereof, the “Existing Loan Agreement”).
The Fourth Amended and Restated Loan Agreement provides for a $
Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing. These alternatives are: (i) SOFR (Secured Overnight Financing Rate), plus applicable margin or (ii) the agent bank’s prime rate generally borrowed over shorter durations. The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn. Unused line fees are recorded as interest expense. The effective weighted average interest rate, including unused line fees, for the twenty-six weeks ended June 29, 2024 and July 1, 2023 were
All borrowings under the Fourth Amended and Restated Loan Agreement remain collateralized with substantially all of the Company’s assets, as well as the capital stock of its subsidiaries. The Revolving Credit Facility also contains various financial and non-financial covenants, such as a covenant that restricts the Company’s ability to borrow in order to pay dividends. As of June 29, 2024, the Company was in compliance with all covenants contained in the Revolving Credit Facility. The Company believes that it will maintain compliance with its financial covenants for the foreseeable future.
Borrowings under the line of credit as of June 29, 2024 and December 30, 2023 were $
9. Per Share Data
The Company uses the treasury stock method to calculate the weighted-average shares outstanding used for diluted earnings per share. The number of weighted-average shares used to calculate basic and diluted earnings per share for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023 was determined as follows:
| Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Dilutive effect of outstanding restricted share awards | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
For all periods presented, there were anti-dilutive shares included in the calculation of common stock equivalents as there were no stock options outstanding.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
9. Per Share Data (Continued)
Unissued shares of common stock were reserved for the following purposes:
| June 29, 2024 | December 30, 2023 | |||||||
| Time-based restricted stock awards outstanding | ||||||||
| Performance-based restricted stock awards outstanding | ||||||||
| Future grants of options or shares | ||||||||
| Shares reserved for employee stock purchase plan | ||||||||
| Total | ||||||||
10. Share-Based Compensation
At June 29, 2024, the Company had two share-based employee compensation plans, the Employee Stock Purchase Plan and the 2014 Omnibus Equity Compensation Plan.
The Company measures the fair value of share-based awards, if and when granted, based on the Black-Scholes method and using the closing market price of the Company’s common stock on the date of grant. Awards typically vest over periods ranging from to years and expire within
Share-based compensation expense for the thirteen weeks ended June 29, 2024 and July 1, 2023 was $
As of June 29, 2024, the Company had $
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
10. Share-Based Compensation (Continued)
Incentive Share-Based Plans
Employee Stock Purchase Plan
The Company implemented the 2001 Employee Stock Purchase Plan (the “Purchase Plan”) with shareholder approval, effective January 1, 2001. Under the Purchase Plan, employees meeting certain specific employment qualifications are eligible to participate and can purchase shares of common stock semi-annually through payroll deductions at the lower of
In fiscal 2015, the Company amended the Purchase Plan with shareholder approval to increase the aggregate number of shares of stock reserved for issuance or transfer under the Purchase Plan by an additional
The Company has two offering periods in the Purchase Plan coinciding with the Company’s first two fiscal quarters and the last two fiscal quarters. Actual shares are issued on the first business day of the subsequent offering period for the prior offering period payroll deductions. The number of shares issued on January 2, 2024 (the first business day following the previous offering period) was
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
10. Share-Based Compensation (Continued)
2014 Omnibus Equity Compensation Plan (the 2014 Plan)
The 2014 Plan, approved by the Company’s shareholders in December 2014, initially provided for the issuance of up to
All stock awards typically include dividend accrual equivalents, which means that any dividends paid by the Company during the vesting period become due and payable after the vesting period assuming the grantee’s stock award fully vests. Dividends for these grants are accrued on the dividend payment dates and included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. As of June 29, 2024, there were
As of June 29, 2024, under the 2014 Plan,
The intrinsic value of all equity grants for the fiscal quarters ended June 29, 2024 and July 1, 2023 was $
Time-Based Restricted Stock Awards
From time-to-time the Company issues time-based restricted stock awards. The following summarizes the activity in the time-based restricted stock awards under the 2014 Plan during the twenty-six weeks ended June 29, 2024:
| Number of Time-Based Restricted Stock Awards | Weighted Average Grant Date Fair Value per Share | |||||||
| Outstanding non-vested at December 30, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited or expired | ||||||||
| Outstanding non-vested at June 29, 2024 | $ | |||||||
Based on the closing price of the Company’s common stock of $
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
10. Share-Based Compensation (Continued)
Performance-Based Restricted Stock Awards
From time-to-time the Company issues performance-based restricted stock awards to its executives. Performance-based restricted stock awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee.
The following summarizes the activity in the performance-based restricted stock awards during the twenty-six weeks ended June 29, 2024:
| Number of Performance- Based Restricted Stock Awards | Weighted Average Grant Date Fair Value per Share | |||||||
| Outstanding non-vested at December 30, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited or expired | ( | ) | $ | |||||
| Outstanding non-vested at June 29, 2024 | $ | |||||||
As of June 29, 2024, there were two outstanding grants for performance-based restricted stock awards issued to Bradley Vizi, the Company’s Chief Executive Officer. In February 2024, the Company issued a performance-based restricted stock unit grant of a maximum of
The Company assesses at each reporting date whether achievement of any performance condition is probable and recognizes the expense when achievement of the performance condition becomes probable. The Company will then recognize the appropriate expense cumulatively in the year performance becomes probable and recognize the remaining compensation cost over the remaining requisite service period. If at a later measurement date, the Company determines that performance-based restricted stock awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed.
Share-based compensation for performance-based equity agreement was $
There were
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
11. Treasury Stock and Retired Share Transactions
On March 29, 2024, the Board authorized a program to repurchase shares of its common stock up to an amount not to exceed $
On April 24, 2023, the Company agreed to repurchase, in a private transaction approved by the Board,
During the twenty-six weeks ended June 29, 2024, the Company purchased
The Company accrued $
During the twenty-six weeks ended June 29, 2024, the Company issued and retired
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
12. New Accounting Standards and Updates
In March 2020, the Financial Accounting Standard Board (FASB) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard only applies to contracts and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the LIBOR and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Topic 848. This update defers the sunset date from December 31, 2022 to December 31, 2024. The Company may elect to apply the amendments prospectively through December 31, 2024. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280)”, which is intended to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments require disclosure of significant segment expenses regularly provided to the chief operating decision maker (CODM) as well as other segment items, extend certain annual disclosures to interim periods, clarify the applicability to single reportable segment entities, permit more than one measure of profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely require us to include the additional disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the fiscal year ending December 28, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires the annual financial statements to include consistent categories and greater disaggregation of information in the rate reconciliation, and income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company’s annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option. We are currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures.
| RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts, unless otherwise indicated) |
13. Segment Information
The Company follows ASC 280, “Segment Reporting,” which establishes standards for companies to report information about operating segments, geographic areas and major customers. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies (see Note 1 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 30, 2023).
Segment operating income includes selling, general and administrative expenses directly attributable to that segment as well as charges for allocating corporate costs to each of the operating segments. The following tables reflect the results of the reportable segments consistent with the Company’s management system:
| Thirteen Weeks Ended June 29, 2024 | Specialty Health Care | Engineering | Life Sciences and IT | Corporate | Total | ||||||||||||||
| Revenue | $ | $ | $ | $ | $ | ||||||||||||||
| Cost of services | |||||||||||||||||||
| Gross profit | |||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||
| Depreciation and amortization of property and equipment | |||||||||||||||||||
| Amortization of acquired intangible assets | |||||||||||||||||||
| Costs associated with potential stock issuance | |||||||||||||||||||
| Operating income (loss) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||
| Total assets as of June 29, 2024 | $ | $ | $ | $ | $ | ||||||||||||||
| Property and equipment acquired | $ | $ | $ | $ | $ | ||||||||||||||
| Thirteen Weeks Ended July 1, 2023 | Specialty Health Care | Engineering | Life Sciences and IT | Corporate | <||||||||||