RCM Technologies, Inc.: Form 10-Q for the period ended Jun 28, 2025

Twenty-Six Weeks Ended June 28, 2025 Compared to Twenty-Six Weeks Ended June 29, 2024 (Continued)

Other Expense, Net. Other expense, net consists of interest expense, unused line fees and amortized loan costs on the Company’s line of credit, net of interest income and gains and losses on foreign currency transactions. Other expense, net increased by $0.6 million as compared to the comparable prior year period, due to an increase in interest expense, net of $0.2 million and an increase to losses on foreign currency transactions of $0.4 million. Interest expense increased due to increased borrowing and increased interest rates.

Income Tax Expense. The Company recognized $3.6 million of income tax expense for the twenty-six weeks ended June 28, 2025 as compared to $2.9 million for the comparable prior-year period. The consolidated effective income tax rate for the current period was 31.0% as compared to 27.6% for the comparable prior-year period. The effective income tax rates for the twenty-six weeks ended June 28, 2025, were approximately 31.7%, 25.1%, and 11.8% in the United States, Canada, and Europe, respectively. The relative income or loss generated in each jurisdiction can materially impact the overall effective income tax rate of the Company, particularly the ratio of Canadian and European pretax income versus U.S. pretax income. The effective income tax rate can also be impacted by discrete permanent differences affecting any period presented. The comparable prior-year period estimated income tax rates were 28.3%, 26.8%, and 15.4% in the United States, Canada, and Europe, respectively. The primary reason for the increase in the consolidated and United States effective rates in the current period is due to increases to permanent tax differences in the United States. The low effective tax rate in Europe during the current period is due to a fixed tax benefit relative to a small pretax loss.

Differences between the effective tax rate and the applicable U.S. federal statutory rate may arise, primarily from the effect of state and local income taxes, share-based compensation, and potential tax credits available to the Company. The actual 2025 effective tax rate may vary from the estimate depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, the vesting of share-based awards, and the amount of any permanent book to tax differences.

Segment Discussion

Specialty Health Care

Specialty Health Care revenue of $86.1 million for the twenty-six weeks ended June 28, 2025, increased 14.6%, or $11.0 million, compared to the comparable prior-year period. The increase in revenue was driven by the Company’s school clients, offset by a decrease in revenue from the Company’s non-school clients. Revenue from school clients for the twenty-six weeks ended June 28, 2025, was $74.5 million as compared to $62.7 million for the comparable prior-year period. The increase to revenue from school contracts was driven by both existing and new clients. Revenue from non-school clients for the twenty-six weeks ended June 28, 2025, was $11.6 million as compared to $12.4 million for the comparable prior-year period. The decrease in non-school revenue was primarily driven by the reduction in revenue from a large long-term care group where the Company deliberately reduced services, which generated $0.9 million in the current period as compared to $2.0 million in the comparable prior-year period. Gross profit increased by 12.8%, or $2.8 million, to $24.5 million for the twenty-six weeks ended June 28, 2025 as compared to $21.7 million in the comparable prior-year period. Gross profit increased due to an increase in revenue, offset by a decrease in gross profit margin. Gross profit margin for the twenty-six weeks ended June 28, 2025, decreased to 28.4% compared to 28.9% for the comparable prior-year period. The decrease in gross profit margin was primarily attributed to a greater mix shift to lower-margin services. Specialty Health Care experienced operating income of $12.3 million for the twenty-six weeks ended June 28, 2025, as compared to $10.8 million for the comparable prior-year period. The primary reason for the increase in operating income was the increase to gross profit, offset by an increase in SGA expense to $12.0 million for the twenty-six weeks ended June 28, 2025 compared to $10.8 million for the comparable prior-year period. SGA expense increased primarily due to sales and recruiting infrastructure investments to support revenue growth.

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio and debt instruments, which primarily consist of the Revolving Credit Facility. The Company does not have any derivative financial instruments in its portfolio. The Company places its investments in instruments that meet high credit quality standards. The Company is adverse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of June 28, 2025, the Company’s investments consisted of cash and money market funds. The Company does not use interest rate derivative instruments to manage its exposure to interest rate changes. Based on the Company’s variable-rate line of credit balances during the twenty-six weeks ended June 28, 2025, if the interest rate on the Company’s variable-rate line of credit (using an incremental borrowing rate) during the period had been 1.0% higher, the Company’s interest expense on an annualized basis would have increased by $0.4 million. The Company does not expect any material loss with respect to its investment portfolio.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As of June 28, 2025, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Changes in Internal Control over Financial Reporting

There were no changes during the fiscal quarter ended June 28, 2025, in our internal control over financial reporting (as defined in Rule 13a-15(f)under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION

For information regarding factors that could affect the Company’s business, see the risk factors discussed under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024.