Good morning, and thank you for joining us. This is Kevin Miller, Chief Financial Officer of RCM Technologies. I am joined today by Brad Vizi, 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 Vizi, Executive Chairman, to provide an overview of RCM's operating performance during the fourth quarter.
Thanks, Kevin. Good morning, everyone. RCM closed 2022 on a high note, despite an increased drumbeat of adverse economic prognostications over the last 12 months. Also of note, Q4 was our second consecutive quarter lapping a year-over-year pandemic-related comparable period as society and labor markets transition to a more normalized labor environment. Again, growth and value creation remain a testament to the strength of RCM's client-first platform, secular end markets, and devoted employee base. I will now reflect on progress made within each of our businesses. In 2022, significant progress was made by RCM's Healthcare division in building school healthcare staffing as policymakers and educators recognize the importance of providing comprehensive healthcare services to students. Many school districts nationwide face significant staffing shortages, further highlighting under-investment in the nation's social infrastructure.
The pandemic brought increased focus on health and safety in schools, highlighting the need for trained healthcare professionals to care for students. In response, many schools are working to improve their staffing, including hiring more nurses, therapists, and behavioral health providers. A significant development in school healthcare staffing was expanding mental and behavioral health services. There has been growing concern about students' mental health in recent years, especially considering the COVID-19 pandemic. In cooperation with RCM subject matter experts, many schools recognize the need for additional mental and behavioral health support. These districts work with our RCM team to hire more mental and behavioral health professionals, including paraprofessionals, RBTs, BCBAs, counselors, and social workers. In 2022, there was a significant increase in the number of new school clients that needed RCM to help offer their students behavioral health services.
While providing students with access to these services, schools are helping to address a vital need and support the well-being of their students. We believe RCM is positioned to be a critical part of their solution for many years to come. In 2023, RCM will continue to expand these service offerings. In addition, RCM is also taking proactive measures to tackle the challenge of staffing shortages, high vacancies, and voluntary turnover in hospitals and long-term care facilities through its comprehensive and outstanding recruitment solutions. The demand for such services in nursing and allied is significant as healthcare organizations strive to provide exceptional care while maintaining cost-effective solutions. To help its clients achieve this objective, RCM is fully committed to offering world-class innovative solutions. These include, but are not limited to MSP solutions, international recruitment solutions, and extensive recruitment initiatives.
For Life Sciences and IT, in 2022, we accelerated our transition to higher-value services, setting the foundation, advancing our divisional identity, and enabling our team to be self-sufficient. We have begun to solidify our management team. We have successfully placed several building blocks that will allow our division to further expand the relationships with our clients while attracting new ones. We created new building blocks for recruiting, managed services, HCM, data governance, and project management. As we move into 2023, those foundation blocks will be put to good use. We will take those blocks and combine them to build the next level, including our new HCM managed service practice, our retained and executive search practice, as well as our new assessment initiative for life science companies. On the engineering front, RCM Process & Industrial continues to deliver and confirm a strong growth trajectory.
I am proud of the evolution that this team has undergone in 2022 with new leadership and structuring the organization for scale and future growth. The team has kept laser focus on existing customer and vendor relationships while diversifying their client base and building inroads to new and emerging markets. Performance in 2022 and focus on the future has led to several key partnerships, a diverse set of end markets that will blossom in 2023 and last for many years to come. The creativity, commitment, and drive of this team is contagious. Uniting adjacent groups within RCM around common customers to provide a greater depth in our scope, our services, and ultimately, in our value add as a partner.
RCM Process & Industrial made significant progress with our partners in 2022, commissioning several major projects across the globe while placing others on a launch pad that will undoubtedly revolutionize the worldwide impact society has on the environment. Our expertise and patented technological integration in advanced energy saving solutions, including distillation and evaporation, materially lower carbon intensity scores, and ultimately aid in addressing one of the most pressing problems of the twenty-first century, climate change, while proudly matching each of our customers specific needs with optimal productivity and profitability. The formative work performed by this team in 2022 has led to multiple shovel-ready projects which we are already seeing advance in 2023.
Through the opening of RCM Thermal Kinetics Innovation Center in Amherst, New York, we are positioned to design and perform laboratory tests supporting our clients in bringing projects to market more efficiently, with less risk, and with an enhanced ability to demonstrate process output result beyond computer simulation. The innovation center houses a state-of-the-art test center where customers can witness their feed material being separated in the latest distillation, evaporation, crystallization, and specialty process lab equipment. We expect the innovation center to be integral in supporting carbon reduction and net zero emission goals for rapidly evolving renewable technologies within the bioeconomy, sustainable aviation fuel, pharmaceutical, heavy chemical, metals, and food and beverage end markets.
In summary, RCM Process & Industrial has the team, the strategic direction, the drive, and the momentum to accelerate our clients in their pursuit to conquer the most difficult air and liquid separation problems facing society today. From carbon transformation to heavy oil scrapping, sustainable transportation fuels, clean hydrogen, and many related applications, our patented processes and expertise are key to facilities seeking to achieve environmental compliance and optimize operations at and below net zero. Continuing with engineering, RCM Energy Services closed the year with record bookings as we become a significant player in the energy transition across the globe. The group made investments in business development and growth strategies to get closer to our clients and bring innovative solutions to support our clients increasing demand to enhance grid resiliency, grid security, and modernization of the electrical power grid.
The establishment of offices in Florida and Puerto Rico were a part of this strategic step to expand geographically and serve our communities in new and valuable ways. Our sales funnel has expanded, becoming more balanced as we serve new markets and sectors our full turnkey solutions. The high quality, innovative approach, and trusted relationships we have consistently built with our clients remain paramount. The continued growth of our long-term client portfolio is a testament to the team's ability to deliver value safely and efficiently. Being awarded seven multi-year EPC projects with one of North America's largest utility companies was extremely gratifying to see our clients trust in our project delivery excellence through these continued partnerships. The trajectory into 2023 remains growth and performance excellence, building from a position of strength.
The energy services team is relentlessly driven by the new and evolving demands we are seeing across the world as RCM becomes a significant player on an international stage, helping the world navigate a multi-decade energy transition. I will close with aerospace. Aerospace substantially exceeded all financial goals and operational objectives in 2022. These objectives were to solidify the base in the engineering and aftermarket while adding high-level engineering talent and management expertise across business development, operations, and recruitment. This division has more than doubled in size and enhanced capabilities since mid-2021. Our strategy continues to encompass investing in highly technical specialty management and employees to attract new customers, both within our engineering and aftermarket domains. Our targets will continue to include other large OEMs and tier one suppliers to broaden our depth within aerospace.
In 2023, our plan will also be to strengthen our engineering aftermarket groups within space and air mobility, which helps to diversify our customer base and support our expansion to include other service offerings. Before turning the call to Kevin, who will cover our financial results in more detail, I will take a moment to touch on our progress on the capital allocation front. During the fourth quarter, we were able to take advantage of perceived economic tumult and sell-off in financial markets to retire over 750,000 shares. Encompassing the 10-week period between the end of the fourth quarter and this call, we were able to achieve a net share count reduction of nearly 1.2 million shares, over 10% of the company since the end of the third quarter, while maintaining abundant financial flexibility.
As mentioned on previous calls. We believe that our ability to remain nimble as we scale and react to opportunity in every aspect of the business is an attribute that will enhance the rate at which we are able to compound value over time. Now, I will turn the call back to Kevin to discuss the Q4, 2022 and full year financial results in more detail.
Thanks, Brad. Regarding our consolidated results, revenue for the fourth quarter was $70.2 million, growing by $5.3 million on a year-over-year basis. Gross margin in the fourth quarter was 29.1% versus 27.4%, improving by 174 basis points on a year-over-year basis. Adjusted EBITDA in the fourth quarter was $7 million versus $5.3 million, growing by 32% on a year-over-year basis. We're especially pleased with our fourth quarter year-over-year gross profit growth, with specialty health care growing by $1.9 million or 21%, engineering growing by $0.6 million or 12%, life sciences and IT growing by $0.2 million or 6%. We look to 2023 and beyond, we've never been more excited about our potential growth and new initiatives.
After completing a historic 2022, we realize that we have some tough quarterly comps in 2023. We do expect to have a strong 2023, but we expect the sequential growth curve to be more typical, starting slow in Q1 2023 and building from there. While we are optimistic that our 2023 engineering results will beat 2022, we will see lumpy results in Q1 2023. Due to our strong pipeline, we expect a nice jump in Q2 2023 and to build from there. Based on our current engineering backlog and pipeline, we expect our best second half in a very long time. On a consolidated basis, we expect the first half of 2023 to look similar to the second half of 2022, except for Q3 seasonality in healthcare. We expect significant improvement in the second half of 2023.
We're especially excited by new behavioral health initiatives and new school contracts that will kick into gear during the 2023, 2024 school year, starting in September of 2023. This concludes our prepared remarks. At this time, we will open the call for questions.
All right, ladies and gentlemen, if you do have any questions, please press star one on your telephone keypad. For questions, please press star one on your telephone keypad. All right, first up, it looks like we have Bill Sutherland. Your line is now open.
Thank you. Hey, good morning, Brad, Kevin.
Good morning, Bill.
I wondered if I could just get a couple of numbers. One is, if you could give the split in specialty health care between education clients and health care.
Sure. Let me just get that for you. Hold on.
While you're searching for that, Kevin, I'm wondering about, you know, there's a lot going on in the healthcare world, certainly apart from education, and I know education's your biggest piece. What are some of the tailwinds and headwinds that you guys are seeing, as you map out 23 in healthcare?
Yeah, Bill, I'll take that one. I'd say most of the discussion has been, you know, around effectively increasing bandwidth. As we've discussed in prior calls, recruiter productivity has been a major initiative for us. We should see the benefits of that start to come online, as this month and as we move through Q2. We'll have pretty good data points, not call it 90 days out, on that side. In addition, we are also looking at and making, you know, significant investments ramping up our foreign program. Most of the discussion has been, you know, the last couple of years, frankly, but I would describe the cadence of the activity has not changed a bit, you know, around basically meeting supply in the market. I wouldn't describe demand waning whatsoever.
Okay. On the MSP front, Brad, is that a new solution for you, or are you just focusing more on it now?
we have a major MSP client. You know, we're looking to ultimately leverage that relationship and evolve into a more robust offering and build out the portfolio. It, you know, it's been a very successful endeavor for us and, you know, certainly an opportunity to expand the division further.
Okay.
Yeah. Bill, in the fourth quarter, our school revenue was about $23.8 million, and our non-school revenue was $12 million.
Okay. Thank you. The only thing I noticed in the 4Q print that kind of stood out in the segments was the gross margins for engineering. I'm assuming that just it moves around depending on where you are with the project, you know, the project, but it was down a couple of points versus the first three quarters. Just a huge gross margin for IT in the fourth quarter. Any color there? Thanks.
Sure. As you pointed out, you know, engineering can jump around quite a bit. you know, we have a lot of fixed-price contracts. you know, we have large EPC contracts. you know, the margin can be pretty haphazard, as you know. There's nothing really in particular to discuss there other than, you know, you should expect to see, you know, margins jumping out a little bit. That's just historically, you know, what we've seen and frankly expect in the future.
Kev, remind me when you guys divested Canadian Power.
That was in July of 2021.
Okay. that's out of the numbers last year. Okay.
Yeah, that's out of the quarterly numbers in both periods. Then, as far as, you know, as far as IT is concerned, we're just continuing to push to get higher margins. Obviously, our RPO, you know, business, impacted the overall margins because the margins are quite high on that business, as you know, gross margins. You know, we're probably a little bit high in Q4 in terms of where I expect to see it, you know, on a go-forward basis. Certainly we'll be above, you know, what you're used to seeing for the first three quarters, you know?
Understood.
You know, Q4 was a bit of a spike. You know, we'll be consistently beating what we've done in the past in terms of the gross margin on IT.
Great. Last one. On just, impressive share repurchase going on here. Is this, probably the major, focus of capital allocation for the time being?
Yeah. I think that's a fair assessment, Bill. You know, look, I think these things tend to, you know, follow kind of macroeconomic trends with respect to sentiments around, you know, just the economy in general or nerves. You know, those don't always match up with reality. You know, I think, we potentially, can stand to benefit, you know, substantially from that. Share repurchases is one way to go about it. When you look at the math at these levels, it becomes quite compelling, frankly. You know, makes the capital allocation decisions pretty easy, at least over the near term.
Okay. Thanks, guys.
Well, I could talk a little bit about the school contracts, and Brad can probably talk a little bit about the pricing. You know, I was looking at this yesterday. At the end of 2019, we had less than 30 school customers, and only 3 were over $300,000 a year. Today, we have well over 60 school customers, and we have well over 15 that are over $300,000 a year. When you look at the growth, you know, curve of total clients and what we call, you know, the larger clients, ones that are over $300,000 a year or more, you know, that's where we're focused.
We can absolutely see that kind of growth curve continue in terms of, you know, the number of schools and the number of schools that we have over $300,000 and over $1 million. You know, there aren't that many, you know, $5 million-plus schools out there, but there are hundreds more schools, you know, that are $300,000 or more, you know, and, you know, quite a few that are, you know, potentially over $1 million. You know, when you look at the school market, you know, we believe we're the largest, you know, healthcare provider to the school market in the country, but we're still just capturing, you know, a pretty small percentage of the overall market. The growth is clearly there.
You know, we're just scratching the surface, frankly, on the behavioral health side, which we think is just an explosive, you know, market. It's big today. Three, four years from now, it's gonna be 10 times what it is today, in our opinion.
Yeah. I think that's a key point and a good way to kind of articulate it, would be scratching the surface of the opportunity. I think you're gonna have another, you know, meaningful leg of growth to that end market in general from behavioral health. You know, with respect to driving margins and pricing and so on, pricing isn't really a primary variable that we focus on. You know, We'll see a mix shift, you know, depending on the types of, you know, professionals we staff and so on. You know, but it really is less a matter of, you know, maximizing rate. We think, you know, the education end market has significant legs for a long time.
You know, this is an area that's been underinvested in for a long time, and people are just starting to wake up to it, you know, as a result of COVID. You know, even just coming out of COVID, you know, to be honest with you, it even ramped up a little bit slower than we would've anticipated. You're really starting to see it, full throttle in many ways now. You know, we anticipate that being reflected in our results, you know, as we move forward and, you know, get into the back half of this year.
One last question as it relates to the Energy Services business. Obviously, offices in Puerto Rico and Florida is pretty strategic given the amount of hurricane repair activity and infrastructure upgrade that has been needed and is going to be needed in the area to underground activities that are forever ongoing in Florida and other markets. Can you, can you talk about sort of those new geographies and sort of your thoughts and growth expectations and maybe some of the customers or services you're providing in them?
Yeah. This is a great question. We're actually very excited about these initiatives. We've been doing business in Puerto Rico for a very long time, but primarily on the life sciences front. You know, we are increasing significantly in energy services there. In many ways, that's a function of, you know, the technological capability and really the goodwill with major utility clients in the United States, that we've been able to leverage into, you know, increased market share in Puerto Rico. I actually look for that to be certainly a bright spot in the portfolio going forward. You know, we had, you know, significant success over the last, call it 90 to 120 days or so. We actually think that that's very much the beginning.
It's exciting as you see, you know, the portfolio start to grow, 'cause historically, if you look at the geographic concentration of the business, you know, we've certainly had a stronghold in the Northeast and throughout the, you know, East Coast. Now we are starting to migrate and follow demographics in a much more meaningful way down in the Southeast, South and, you know, out West. It's exciting strategic for a number of reasons.
Thank you very much.
All right. At this time, there are no further questions in queue. Did you.
Thank you for joining.
Want to remind everyone to press... Oh, excuse me. Sorry.
No. I think we're fine. We'll go ahead and kind of close it out here. Thank you everyone for attending the fourth quarter call, and we look forward to our next update in May.
All right. Ladies and gentlemen, that does conclude your call. You may now disconnect your lines, and thank you again for joining us today.