Something remarkable is brewing within the walls of RCM Technologies, a company that provides business and technology solutions across various sectors. While most analysts are focusing on the robust school pipeline and the anticipated fourth quarter upside, a deeper dive into the Q1 2024 earnings call transcript reveals a subtle yet potentially explosive shift – the rise of the "shared services team." This seemingly innocuous addition to the organizational structure might just hold the key to unlocking a multifold return for investors.

RCM Technologies, a company with a rich history spanning over five decades, has always operated on a unique model – a collection of specialized groups, each focusing on a specific market segment like healthcare, life sciences, energy, aerospace and defense, and process industries. This model has allowed RCM to develop deep expertise and build strong relationships within each sector. However, it has also, at times, led to siloed operations and missed opportunities for cross-collaboration.

The introduction of the shared services team signals a strategic shift towards a more integrated and synergistic platform. Brad Vizi, the Executive Chairman, describes the team's mandate as streamlining the strategic focus of the groups, strengthening collaboration, and enhancing communication about the RCM platform. This is not just corporate jargon; it's a fundamental shift in how RCM will operate in the future.

Imagine this: RCM's healthcare division, already the leader in K-12 school staffing, identifies a need for energy efficiency upgrades within a school district. Instead of simply focusing on staffing needs, the shared services team steps in, connecting the healthcare division with the energy services group, which possesses expertise in net-zero transitions and grid modernization. Suddenly, RCM is no longer just a staffing vendor, but a holistic solutions provider, offering a unique and integrated value proposition to the school district.

This "land and expand" strategy, fueled by enhanced internal collaboration, could be a game-changer for RCM. The potential for cross-selling and expanding services within existing clients is immense. Consider the life sciences and data solutions division, where a doubling of renewal business year-over-year points to the stickiness of its solutions. Now imagine this division leveraging the shared services team to tap into the expertise of other groups, offering, for instance, specialized staffing solutions from the healthcare division or engineering expertise from the aerospace and defense group.

Growth Across Divisions

The following chart illustrates the year-over-year growth in gross profit for RCM's key divisions based on the Q1 2024 earnings call.

Note: Healthcare growth adjusted for COVID-related revenue and reduction in services to a specific long-term care facility client.

The financial implications of this quiet transformation could be staggering. While the company is projecting low double-digit consolidated adjusted EBITDA growth for 2024, the shared services team could act as a catalyst, significantly exceeding these projections. The potential for increased revenue through cross-selling, coupled with enhanced margins from higher-value integrated solutions, could propel RCM towards a growth trajectory that far surpasses market expectations.

Let's put some numbers to this hypothesis. RCM is currently active in roughly 70 schools, with behavioral health services expanding rapidly within this client base. If the shared services team can successfully cross-sell solutions from just two other divisions to even half of these schools, the revenue impact could be significant. For example, if RCM can generate an additional $500,000 in revenue per school from cross-selling, that's a potential $17.5 million in new revenue. Assuming a conservative 20% EBITDA margin on this new revenue, that's an additional $3.5 million in EBITDA – a substantial boost to the projected growth.

This is just one example within one division. The potential for cross-selling across RCM's diverse portfolio of specialized groups, facilitated by the shared services team, is truly remarkable.

Of course, challenges remain. The success of the shared services team hinges on effective communication, seamless collaboration, and a willingness to embrace change within the various groups. However, the potential rewards far outweigh the risks. If RCM can successfully navigate this transition and leverage the power of its integrated platform, the company could be poised for a period of sustained and substantial growth, potentially delivering a 10x return for investors who recognize the significance of this quiet transformation.

"Fun Fact: RCM's Diversification"

RCM Technologies operates in a wide range of industries, from staffing for K-12 schools to engineering solutions for sustainable aviation fuel production. This diversification helps to mitigate risk and creates multiple avenues for growth.