Item 1. Business
ITEM 1. BUSINESS (CONTINUED)
Competition
The market for Healthcare, Engineering and Life Sciences, Data and Solutions is highly competitive and is subject to rapid change. As market demand has shifted, many software companies have adopted strategies to pursue services and consulting offerings, making them direct competitors when, in the past, they may have been alliance partners. Primary competitors include participants from a variety of market segments, including publicly and privately held firms, systems consulting and implementation firms, application software firms, service groups of computer equipment companies, facilities management companies, general management consulting firms, and staffing companies. In addition, the Company competes with its clients’ internal resources, particularly where these resources represent a fixed cost for the client. Such competition may impose additional pricing pressures on the Company.
The Company believes its principal competitive advantages in the healthcare, engineering and life sciences, data and solutions market include: strong relationships with existing clients, a long-term track record with over 1,000 clients, a broad range of services, technical expertise, knowledge and experience in multiple industry sectors, quality and flexibility of service, responsiveness to client needs and speed in delivering life sciences, data and solutions.
Additionally, the Company competes for suitable acquisition candidates based on its differentiated acquisition model, its entrepreneurial and decentralized operating philosophy, and its strong corporate-level support and resources.
Seasonality
The Company’s operating results can be affected by the seasonal fluctuations in client expenditures. Expenditures in the Engineering and Life Sciences and Data and Solutions segments can be negatively affected during the first quarter of the year, when clients are finalizing their budgets. Quarterly results generally fluctuate depending on, among other things, the number of billing days in a quarter and the seasonality of clients’ businesses. The business is also affected by holiday and seasonal vacation timing, generally resulting in lower revenue and gross profit in the fourth quarter of each year, even after accounting for non-seasonal factors. Extreme weather conditions may also affect demand in the first and fourth quarters of the year as certain clients’ facilities are in geographic areas subject to closure or reduced hours due to inclement weather. The Company generally experiences an increase in its cost of sales and a corresponding decrease in gross profit and the gross margin percentage in the first and second fiscal quarters of each year due to the resetting of certain state and federal employment tax rates and related salary limitations. Also, the Company’s Specialty Health Care segment typically experiences a significant decline in revenue due to the substantial closure of one of its largest customers, the New York City Department of Education, and other educational institution clients during the third quarter, as these clients observe summer recess.
Government Regulations
The Company is a consulting firm and employment service provider and is generally subject to one or more of the following types of government regulation: (1) regulation of the employer/employee relationship between a firm and its employees, including tax withholding or reporting, social security or retirement, benefits, workplace compliance, wage and hour, anti-discrimination, immigration and workers’ compensation, (2) registration, licensing, record keeping and reporting requirements, and (3) federal contractor compliance. The Company believes it is in material compliance with all employee-related statutes.
Intellectual Property
Management believes the RCM Technologies, Inc.’s name is extremely valuable and important to its business. The Company endeavors to protect its intellectual property rights and to maintain certain trademarks, trade names, service marks, and other intellectual property rights, including The Source of Smart Solutions® and Industries of Tomorrow, Today™, for which a trademark application has been submitted. The Company is not currently aware of any infringing uses or other conditions that would be reasonably likely to materially and adversely affect the Company’s use of its proprietary rights.
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ITEM 1. BUSINESS (CONTINUED)
Human Capital
Our employees and contractors (together, our "workforce") are the Company's most valuable resources for current and future success. We promote an environment that ensures safety, encourages diversity and inclusion, fosters growth and self-development, and provides meaningful work. All employees contribute to our success through attractive, aligned rewards. Notable programs we offer to our full-time employees include:
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Compensation packages that are market competitive, considering the location and responsibilities of the role;
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The majority of full-time, salaried employees are eligible for incentive-based compensation such as performance bonuses and commissions;
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High-quality employer-sponsored health insurance;
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Access to numerous other employer-sponsored and employee-sponsored benefit plans;
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Employer 401(k) matching contributions;
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Employee stock purchase plan (at least a 15% discount to market value at the time of purchase)
Our recruiting teams use internal and external resources to recruit highly skilled and talented workers, and we encourage and reward workforce referrals for open positions.
In addition to our comprehensive investment in our workforce success, we strive to maintain an inclusive environment that values and leverages the uniqueness of each person to the benefit of all our stakeholders. We view the combination of diverse perspectives and backgrounds as a powerful force for innovation. To promote diversity and our core principles, we emphasize dignity, value, and the equality of all members, regardless of race, color, religion, age, gender, or sexual orientation, through our actions and workplace training programs. We continually strive to harness the diversity of our global workforce by cultivating a climate that permits all of our workforce to bring their authentic selves to work every day.
The health and safety of our workforce are also a top priority. We have implemented appropriate procedures and precautions to ensure the continued safety and well-being of our workforce. We strive to comply with all federal and local workplace laws and regulations where we do business. We are always looking for ways to exceed compliance standards by applying continuous improvement discipline to proactively eliminate workplace risks.
The Company believes promoting engagement and empowering its workforce drives better business results. As a result, the Company believes it has an "open door" culture in which every member of its workforce is comfortable expressing ideas for improving the Company and its performance. Our culture has led to action plans at all levels of the organization and drives continuous conversations about the things that matter most to our workforce and their teams.
The Company's employees and contractors are generally divided into four groups: 1) Nonbillable employees; 2) Billable salaried employees; 3) Billable hourly long-term employees; 4) Billable hourly short-term employees and contractors.
Nonbillable employees are primarily full-time and salaried. These positions include, but are not limited to, executives, managers, general administration, finance, accounting, account managers, recruiters, credentialers, etc. These employees are not billed to clients. As of January 3, 2026, the Company employed approximately 385 nonbillable employees. The expense for these employees is included in the Company's selling, general, and administrative expenses in its income statements.
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ITEM 1. BUSINESS (CONTINUED)
Billable salaried employees primarily include senior-level employees whose time is often billed to clients. These employees tend to be long-term in nature. Many are intended to produce high utilization rates (representing the percentage of their time billed to clients), often in the 90% to 100% range. However, some have nonbillable responsibilities such as account management, client proposal preparation, general strategy formulation, expert content generation, project controls, overseeing projects where their time is not billable, supervising billable personnel, etcetera. These employees' utilization rates generally range from 20% to 90%. Most of the expense for billable salaried employees are included in the Company's direct costs in its income statements.
Billable hourly long-term employees have very high utilization, typically in the 90% to 100% range. For most of these employees, our goal is near 100% utilization. They are hired with the idea that we want them to work on multiple assignments, either in succession or simultaneously. Billable hourly short-term employees have nearly 100% utilization. They are typically hired for one assignment, and upon completion, they terminate.
As of January 3, 2026, our billable workforce comprised approximately 3,825 Specialty Health Care services personnel, 495 Engineering and Technical personnel, and 225 Life Sciences, Data and Solutions personnel assigned by the Company to work on client projects or assignments for various periods. None of the Company's employees are party to a collective bargaining agreement.
The Company conducts business globally but is principally concentrated in North America, Europe and the Philippines. As of January 3, 2026, the Company's workforce breaks out as follows:
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United States and Puerto Rico: approximately 225 nonbillable and 4,370 billable
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International (Canada, Europe and the Philippines): approximately 160 nonbillable and 175 billable
Access to Company Information
The Company is a Nevada corporation organized in 1971. The address of its principal executive office is 2500 McClellan Avenue, Suite 350, Pennsauken, NJ 08109-4613.
The Company electronically files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site ( http://www.sec.gov ) that contains reports, proxies, information statements, and other information regarding issuers that file electronically.
The Company makes available on its website or by responding free of charge to requests addressed to the Company’s Corporate Secretary, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed by the Company with the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The Company’s website is http://www.rcmt.com . The information contained on the Company’s website, or on other websites linked to the Company’s website, is not part of this document. Reference herein to the Company’s website is an inactive text reference only.
The Company has adopted a Code of Conduct applicable to all its directors, officers and employees. In addition, the Company has adopted a Code of Ethics, within the meaning of applicable SEC rules, applicable to its Chief Executive Officer, Chief Financial Officer and Controller. Both the Code of Conduct and Code of Ethics are available, free of charge, by sending a written request to the Company’s Corporate Secretary. If the Company makes any amendments to either of these Codes (other than technical, administrative, or other non-substantive amendments), or waives (explicitly or implicitly) any provision of the Code of Ethics to the benefit of its Chief Executive Officer, Chief Financial Officer or Controller, it intends to disclose the nature of the amendment or waiver, its effective date and to whom it applies in the investor relations portion of the website, or in a report on Form 8-K filed with the SEC.
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ITEM 1A. RISK FACTORS
The Company ’ s business involves a number of risks, some of which are beyond its control. The risk and uncertainties described below are not the only ones the Company faces. Set forth below is a discussion of the risks and uncertainties that management believes to be material to the Company.
Economic Trends
Adverse global economic conditions, when they occur, may create conditions such as increases in inflation, higher interest rates, a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and volatility in credit, equity and fixed income markets. Any or all of these developments can negatively affect the Company’s business, operating results or financial condition in several ways. For example, current or potential customers may be unable to fund capital spending programs, new product launches of other similar endeavors whereby they might procure services from the Company, and therefore delay, decrease or cancel purchases of services or not pay or delay paying for previously purchased services. In addition, these conditions may cause the Company to incur increased expenses or make it more difficult either to utilize existing debt capacity or otherwise obtain financing for operations, investing activities (including the financing of any future acquisitions), or financing activities, all of which could adversely affect the Company’s business, financial condition and results of operations.
Government Regulations
Staffing firms and employment service providers are generally subject to one or more of the following types of government regulation: (1) regulation of the employer/employee relationship between a firm and its employees, including tax withholding or reporting, social security or retirement, benefits, workplace compliance, wage and hour, anti-discrimination, immigration and workers’ compensation; (2) registration, licensing, record keeping and reporting requirements; and (3) federal contractor compliance. Failure to comply with these regulations could result in the Company incurring penalties and other liabilities, monetary and otherwise.
Highly Competitive Business
The staffing services and outsourcing markets are highly competitive and have limited barriers to entry. The Company competes in global, national, regional, and local markets with numerous temporary staffing and permanent placement companies. Price competition in the staffing industry is significant and pricing pressures from competitors and customers are increasing. In addition, there is increasing pressure on companies to outsource certain areas of their business to low cost offshore outsourcing firms. The Company expects that the level of competition will remain high in the future, which could limit the Company’s ability to maintain or increase its market share or profitability. Our inability to compete successfully with our competitors could adversely affect the Company’s business, financial condition and results of operations.
Seasonality of Business
As described in “Item 1. Business,” our operating results are subject to seasonal fluctuations, with reduced demand often occurring during the first quarter of the year when clients are finalizing their engineering and life sciences, data and solutions budgets, and during periods in which there are a substantial number of holidays and seasons vacations. In particular, our school customers significantly reduce activity during the third quarter, when schools are closed for summer recess. Our operating results for any given period may fluctuate because of the timing of holidays, vacations and other events, and if we were to experience unfavorable performance during periods in which we would otherwise expect to have high seasonal demand, we may have limited ability to make up for such performance during periods of seasonally lower demand.
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ITEM 1A. RISK FACTORS (CONTINUED)
Events Affecting Significant Customers
As disclosed in “Item 1. Business,” during the fiscal year ended January 3, 2026, the Company had two customers exceeding 10% of consolidated revenue, representing 20.8% and 13.6% of consolidated revenue. The Company’s five, ten and twenty largest customers accounted for approximately 51.0%, 64.9% and 75.0%, respectively, of the Company’s revenue for the fiscal year ended January 3, 2026. The Company’s customers may be affected by the current state of the economy or developments in the credit markets or may engage in mergers or similar transactions. In addition, customers may choose to reduce the business they do with the Company for other reasons or no reason. The Company could also be materially impacted by actions of prime contractors whereby the Company derives revenue through a subcontractor relationship. Should any significant customers experience a downturn in their business that weakens their financial condition or merge with another company or otherwise cease independent operation, or limit their relationship with us, it is possible that the business that the customer does with the Company would be reduced or eliminated, which could adversely affect the Company’s business, financial condition and results of operations.
Subcontractors, Transit Accounts Receivable and Transit Accounts Payables Related to Construction Management Contracts
The Company’s Engineering segment has entered arrangements to provide construction management and engineering services to customers under which arrangements the Company then engages subcontractors to provide the construction services. Ultimately, as a primary contractor, the Company is responsible for the nonperformance or negligence of its subcontractors, whom the Company requires to be adequately insured and to issue performance bonds for their assignment. Should a subcontractor not perform or act negligently and should there be inadequate insurance or performance bonds in place, the Company might not be able to mitigate its primary liability to the customer, and the Company’s business, financial condition and results of operations could be materially adversely affected. In addition, while payments to subcontractors typically are due from the Company only after the Company receives payment from the ultimate customer, the Company faces the risk that, should a customer not pay the Company, or should a subcontractor demand payment from the Company prior to the Company’s receipt of payment from its customer, the Company’s business, financial condition and results of operations could be materially adversely affected.
Dependence Upon Personnel
The Company’s operations depend on the continued efforts of its officers and other executive management. The loss of key officers and members of the executive management team may cause significant disruption to the Company’s business.
The Company also depends on the performance and productivity of its local managers and field personnel. The Company’s ability to attract and retain new business is significantly affected by local relationships and the quality of service rendered. The loss of key managers and field personnel may also jeopardize existing client relationships with businesses that continue to use the Company’s services based upon past relationships with local managers and field personnel. To meet the Company’s customers' requirements, the Company must recruit and retain appropriate personnel for client assignments.
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ITEM 1A. RISK FACTORS (CONTINUED)
Revolving Credit Facility and Liquidity
If the Company were unable to borrow under its Revolving Credit Facility (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financing Activities”), it may adversely affect the Company’s liquidity, results of operations and financial condition. The Company’s liquidity depends on its ability to generate sufficient cash flows from operations and, from time to time, borrowings under the Revolving Credit Facility with the Company’s agent lender Citizens Bank of Pennsylvania. The Company believes that Citizens Bank is liquid and is not aware of any current risk that they will become illiquid. However, should Citizens Bank experience limitations on its liquidity, our access to capital and thus our own liquidity could be adversely affected. At January 3, 2026, the Company had $24.7 million in borrowings under the Revolving Credit Facility outstanding and $13.2 million outstanding under letters of credit, with availability for additional borrowings under the Revolving Credit Facility of $27.1 million.
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.
All borrowings under the Fifth Amended and Restated Loan Agreement remain collateralized with substantially all 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 to pay dividends. As of January 3, 2026, 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.
Foreign Currency Fluctuations and Changes in Exchange Rates
The Company is exposed to risks associated with foreign currency fluctuations and exchange rate changes. The Company’s exposure to foreign currency fluctuations relates to operations in Canada, Germany, and Serbia, principally conducted through its Canadian, German, and Serbian subsidiaries. Exchange rate fluctuations affect the United States dollar value of reported earnings derived from the foreign operations as well as the carrying value of the Company’s investment in the net assets related to these operations. The Company does not engage in hedging activities for its foreign operations.
Changes in Tax Laws
At any time, United States federal tax laws or their administrative interpretations may change. As a result, changes in United States federal tax laws could negatively impact our operating results, financial condition and business operations, and adversely impact the Company’s shareholders. At any time, tax laws in the Company’s other jurisdictions, Canada, Germany, the Philippines, Puerto Rico, and Serbia, may also change. These tax law changes may materially impact the Company’s income tax expense.
Workers ’ Compensation and Employee Medical Insurance
The Company self-insures a portion of its exposure to workers’ compensation and employees’ medical insurance losses. The Company has established reserves for workers’ compensation and employee medical insurance claims based on historical loss statistics and periodic independent actuarial valuations. Significant differences in actual experience or significant changes in assumptions may materially affect the Company’s future financial results.
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ITEM 1A. RISK FACTORS (CONTINUED)
Improper Activities of Temporary Professionals Could Result in Damage to Business Reputation, Discontinuation of Client Relationships and Exposure to Liability
The Company may be subject to claims by clients related to errors and omissions, misuse of proprietary information, discrimination and harassment, theft and other criminal activity, malpractice, and other claims stemming from the improper activities or alleged activities of temporary professionals. There can be no assurance that current liability insurance coverage will be adequate or will continue to be available in sufficient amounts to cover damages or other costs associated with such claims.
Claims raised by clients stemming from the improper actions of temporary professionals, even if without merit, could cause the Company to incur significant rework costs or other damages. Furthermore, such claims by clients could damage the Company’s business reputation and result in the discontinuation of client relationships.
Acquisitions May Not Succeed
The Company reviews prospective acquisitions as an element of its growth strategy. The failure of any acquisition to meet the Company’s expectations, whether due to a failure to successfully integrate any future acquisition or otherwise, may result in damage to the Company’s financial performance and/or divert management’s attention from its core operations, or could negatively affect the Company’s ability to meet the needs of its customers promptly.
International Operations
The Company operates its business in Canada, Germany, the Philippines, Puerto Rico, and Serbia. For the fiscal year ended January 3, 2026, approximately 9.1% of the Company’s revenue was generated outside the United States. There are certain risks inherent in conducting business internationally including: the imposition of trade barriers, the enactment of tariffs, foreign exchange restrictions, longer payment cycles, greater difficulties in accounts receivable collection, difficulties in complying with a variety of foreign laws (including without limitation the U.S. Foreign Corrupt Practices Act), changes in legal or regulatory requirements, including as to laws and regulations governing economic and trade sanctions, difficulties in staffing and managing foreign operations, complex and uncertain employment environments, political instability and potentially adverse tax consequences. Our operations in Serbia could be adversely affected by the current conflict between Ukraine and Russia, with which Serbia has substantial ties. Should sanctions against Russia affect Russia in a way that causes adverse economic consequences for Serbia, or if such sanctions were to be extended to countries that might be considered aligned with Russia, this could have a negative impact on our employees or operations both within and outside Serbia. To the extent the Company experiences these risks, the business and results of operations could be adversely affected.
Tariffs or Other Restrictions Imposed on Foreign Imports by the U.S. and Related Countermeasures
If significant tariffs or other restrictions are imposed or threatened on foreign businesses by the U.S., and affected countries take related countermeasures, our business and results of operations could be adversely affected. For example, recent U.S. tariffs imposed or threatened on goods, materials, and products from countries where we do business, and any retaliatory actions taken by such countries, could reduce demand for our services, lead to customer losses, and harm our competitive position in key markets. Additionally, ongoing trade tensions and uncertainty regarding future trade policies could negatively impact global economic conditions and consumer confidence, further affecting our business and results of operations.
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ITEM 1A. RISK FACTORS (CONTINUED)
Global Epidemics
As was the case with the COVID-19 pandemic and its endemic, and associated initiatives to reduce its spread, any future global pandemics or endemics could adversely affect the Company’s business and financial position. For example, public and private sector policies and initiatives to reduce the transmission of a highly transmissible disease, such as closures of schools, businesses, and manufacturing facilities, the promotion of social distancing, the adoption of working from home by companies and institutions, and travel restrictions could adversely affect demand for our services and present challenges to us in delivering these services. These impacts on our business could adversely affect our liquidity and access to capital, including our ability to draw on our line of credit.
These factors, along with payment delays, could continue to result in significant bad debts in the near future. Additionally, our operating results would be adversely affected if unexpected increases in labor and labor-related costs, materials, supplies, and equipment used to perform services were not passed on to our clients. In addition, we believe that to maintain or improve our financial performance, we must continue to obtain service agreements with new clients, retain and provide new services to existing clients, achieve modest price increases on current service agreements with existing clients, and/or maintain internal cost reduction strategies at our various operational levels. Furthermore, we believe that our ability to sustain the internal development of managerial personnel is an important factor impacting future operating results and the successful execution of our projected growth strategies. A future pandemic could make these objectives more difficult to attain.
Trademarks
Management believes the RCM Technologies, Inc.’s name is extremely valuable and important to its business. The Company endeavors to protect its intellectual property rights and to maintain certain trademarks, trade names, service marks, and other intellectual property rights, including The Source of Smart Solutions® and Industries of Tomorrow, Today™, for which a trademark application has been submitted. The Company is not currently aware of any infringing uses or other conditions that would be reasonably likely to materially and adversely affect the Company’s use of its proprietary rights. The Company’s success depends on its ability to obtain and maintain its intellectual property, prevent its misappropriation or infringement, maintain trade secret protection, and conduct operations without violating or infringing on the intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming, and it is often difficult, if not impossible, to predict its outcome. If the Company is involved in intellectual property litigation, its business, financial condition, and results of operations could be materially adversely affected.
Data Center Capacity and Telecommunication Links
Uninterruptible Power Supply (UPS), card key access, fire suppression, and environmental control systems protect the Company’s data center. All systems are monitored 24/7, with alerts sent via voice or email. The Company's telecommunications architecture utilizes managed private circuits from AT&T, which include redundancy and diversity.
The Company’s ability to protect its data center against damage from fire, power outages, telecommunications failures, and other disasters is critical to its business operations. To provide many of its services, the Company must be able to store, retrieve, process, and manage large databases and periodically expand and upgrade its capabilities. Any damage to the Company’s data centers or any failure of the Company’s telecommunication links that interrupts its operations or results in an inadvertent loss of data could adversely affect the Company’s ability to meet its customers’ needs and their confidence in utilizing the Company for future services.
The Company’s ability to protect its data, provide services, and safeguard its installations related to its IT infrastructure is, in part, dependent on several outside vendors with whom the Company maintains service-level agreements.
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