RCM TECHNOLOGIES, INC.

Previous wording

Nonetheless, the Company continues to believe that businesses must implement more advanced life sciences, information technology and engineering solutions to upgrade their systems, applications and processes so that they can maximize their productivity and optimize their performance in order to maintain a competitive advantage. Although working under budgetary, personnel and expertise constraints, companies are driven to support increasingly complex systems, applications and processes of significant strategic value. This has given rise to a demand for outsourcing. The Company believes that its current and prospective clients are continuing to evaluate the potential for outsourcing business critical systems, applications and processes.

Current wording

Nonetheless, the Company continues to believe that businesses must implement more advanced life sciences, information technology, and engineering solutions—including AI and specifically Agentic AI, Quality by Design (QbD), and process automation—to upgrade their systems, applications, and processes. By leveraging AI, organizations can enhance data-driven decision-making and predictive analytics, while QbD principles ensure that quality is built into every stage of development and operations. Process automation further streamlines workflows, reduces manual intervention, and increases operational efficiency. These integrated approaches enable companies to maximize productivity and optimize performance, maintaining a competitive advantage even when operating under budgetary, personnel, and expertise constraints. As companies are driven to support increasingly complex systems, applications, and processes of significant strategic value, the demand for outsourcing—especially in areas involving AI, QbD, and automation—continues to rise. The Company believes that its current and prospective clients are actively evaluating the potential for outsourcing business-critical systems, applications, and processes that incorporate these advanced methodologies.

Previous wording

The majority of the Company’s services are provided under purchase orders. Contracts are utilized on certain of the more complex assignments where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. Although contracts normally relate to longer-term and more complex engagements, they do not obligate the customer to purchase a minimum level of services and are generally terminable by the customer on 60 to 90 days’ notice. The Company, from time to time, enters into contracts requiring the completion of specific deliverables. Typically, these contracts are for less than one year. The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables.

Current wording

The majority of the Company’s services are provided under purchase orders. Contracts are used for certain more complex assignments, where engagements are for longer terms or precise documentation of the nature and scope of the assignment is necessary. Although contracts normally relate to longer-term, more complex engagements, they do not oblige the customer to purchase a minimum level of services and are generally terminable by the customer with 60 to 90 days’ notice. The Company, from time to time, enters contracts requiring the completion of specific deliverables. Typically, these contracts are for less than one year. The Company recognizes revenue from these deliverables when the client accepts and approves them.

Previous wording

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, including payroll taxes, employee benefits and insurance. Selling, general and administrative expenses consist primarily of salaries and benefits of personnel responsible for business development, recruiting, operating activities, and training, and include corporate overhead expenses. Corporate overhead expenses relate to salaries and benefits of personnel responsible for corporate activities, including the Company’s corporate marketing, administrative and financial reporting responsibilities and acquisition program. The Company records these expenses when incurred. Corporate overhead expenses are allocated to the segments based on revenue for the purpose of segment financial reporting.

Current wording

Costs of services consist primarily of salaries and compensation-related expenses for billable consultants and employees, including payroll taxes, employee benefits, and insurance. Selling, general, and administrative expenses consist primarily of personnel salaries and benefits for business development, recruiting, operating activities, and training, as well as corporate overhead expenses. Corporate overhead expenses relate to the salaries and benefits of personnel responsible for corporate activities, including the Company’s corporate marketing, administrative, and financial reporting responsibilities, as well as its acquisition program. The Company records these expenses when incurred.

Previous wording

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. In our consolidated financial statements, estimates are used for, but not limited to, accounts receivable and provision for credit losses, goodwill, long-lived intangible assets, accounting for stock options and restricted stock awards, insurance liabilities, accounting for income taxes and accrued bonuses.

Current wording

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. In our consolidated financial statements, estimates are used for, but not limited to, accounts receivable, contract assets, provision for credit losses, goodwill, long-lived intangible assets, accounting for stock options and restricted stock and stock unit awards, litigation or other contingent accruals, accounting for income taxes, and accrued bonuses. The various estimates and assumptions taken into account include, but are not limited to:

Previous wording

The Company derives its revenue from several sources. The Company’s Engineering Services and Life Sciences, Data and Solutions 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.

Current wording

The Company derives its revenue from several sources. The Company’s Engineering Services and Life Sciences, Data and Solutions segments perform consulting and project solution services. The Healthcare segment specializes in long- and short-term staffing and placement services for hospitals, schools, and long-term care facilities, among others. All of the Company’s segments perform staff augmentation services and derive revenue from permanent placement fees.

Previous wording

The Company’s Health Care segment predominantly recognizes revenue through time and material work while its Engineering and Life Sciences, Data and Solutions 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.

Current wording

The Company’s Health Care segment predominantly generates revenue from time-and-materials arrangements. In contrast, its Engineering and Life Sciences, Data and Solutions segments generate revenue from both time-and-materials and fixed-fee arrangements. Revenue from time and materials contracts is recognized over time as performance obligations are satisfied, as the customer simultaneously receives and consumes the benefits of the services performed. These contracts are typically based on the number of hours worked at contractually agreed-upon rates. Accordingly, revenue is recognized based on hours worked at contracted rates, which represents an output method that directly reflects the value of services transferred to the customer.

Previous wording

Deferred revenue was $4.2 million as of December 28, 2024 and $1.9 million as of December 30, 2023. Revenue is recognized when the service has been performed. Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet, although this is an infrequent occurrence. In the fiscal years ended December 28, 2024 and December 30, 2023, the Company recognized revenue of $1.9 million and $1.1 million, respectively, that was included in deferred revenue at the beginning of the reporting period.

Current wording

Deferred revenue was $14.8 million as of January 3, 2026, and $4.2 million as of December 28, 2024. Revenue is recognized when the service has been performed. Deferred revenue may be recognized over a period exceeding one year from the time it was recorded on the balance sheet, although this is an infrequent occurrence. In the fiscal years ended January 3, 2026, and December 28, 2024, the Company recognized revenue of $4.2 million and $1.9 million, respectively, that was included in deferred revenue at the beginning of the reporting period.

Previous wording

There was no goodwill impairment in fiscal 2024 or 2023. 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 in its Engineering and Specialty Health Care segments during the fiscal year ended December 28, 2024 and for all segments during the year ended December 30, 2023. With respect to the fiscal year ended December 28, 2024, since the Company remeasured contingent consideration associated with its Life Sciences, Data and Solutions segment, the Company determined that further testing was necessary. After comparing the fair value of the Life Sciences, Data and Solutions segment to its carrying amount, the Company determined that no impairment loss occurred for the Company’s goodwill related to that segment during the fiscal years ended December 28, 2024 or December 30, 2023. Except for the aforementioned remeasurement of contingent consideration, the Company determined that the existing qualitative factors did not suggest that an impairment of goodwill exists. There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in impairment charges for both its Engineering and Specialty Healthcare segments.

Current wording

There was no goodwill impairment in fiscal 2025 or 2024. 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 or circumstances indicate that the fair value of goodwill may be below its carrying amount. The Company reviewed industry and market conditions, reported unit-specific events, and overall financial performance, and determined that no indicators of impairment of goodwill existed during the fiscal year ended January 3, 2026. As a result of such review, no impairment loss was recorded for the Company’s intangible assets during the fiscal year ended January 3, 2026. With respect to the fiscal year ended December 28, 2024, since the Company remeasured contingent consideration associated with its Life Sciences, Data, and Solutions segment in fiscal 2024, the Company determined that further testing was necessary. After comparing the fair value of the Life Sciences, Data and Solutions segment to its carrying amount, the Company determined that no impairment loss occurred for the Company’s goodwill related to that segment during the fiscal year ended December 28, 2024. There can be no assurance that future indicators of impairment and tests of goodwill impairment will not result in impairment charges for both its Engineering and Specialty Healthcare segments.

Previous wording

From time-to-time the Company issues performance-based restricted stock and stock unit awards to its executives. Performance-based restricted stock and stock unit awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. The Company will reassess at each reporting date whether achievement of any performance condition is probable and would begin recognizing additional compensation cost if and 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 or stock unit awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed. These performance-based restricted stock and stock unit 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 on any stock and stock unit awards that actually vest, if any. 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. Dividends for performance-based restricted stock and stock unit awards that ultimately do not vest are forfeited.

Current wording

From time to time the Company issues performance-based restricted stock and stock unit awards to its executives. Performance-based restricted stock and stock unit awards are typically vested based on certain multi-year performance metrics as determined by the Board of Directors Compensation Committee. The Company will reassess at each reporting date whether achievement of any performance condition is probable and recognizes additional compensation cost if the 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 or stock unit awards deemed as likely to vest are deemed as unlikely to vest, the expense recognized will be reversed. These performance-based restricted stock and stock unit 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 on any stock and stock unit awards that actually vest, if any. 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. Dividends for performance-based restricted stock and stock unit awards that ultimately do not vest are forfeited.

Previous wording

The Company has risk participation arrangements with respect to workers compensation and healthcare insurance. The Company establishes loss provisions based on historical experience and in the case of expected losses from workers compensation, considers input from third parties. 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.

Current wording

The Company has risk participation arrangements for workers' compensation and healthcare insurance. The Company establishes loss provisions based on historical experience and, for expected losses from workers' compensation, considers input from third parties. 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.

Previous wording

In establishing the provision for income taxes and deferred income tax assets and liabilities and valuation allowances against deferred tax assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance and estimates of future earnings. As of December 28, 2024, the Company had both domestic and foreign net deferred tax liabilities of $4.4 million. The domestic long term net deferred tax liability of $4.5 million includes $7.6 million in deferred liabilities offset by $3.0 million in deferred tax assets. The deferred tax liabilities consist of acquisition amortization of $4.3 million, prepaid expenses of $1.1 million, advance depreciation deductions of $0.9 million and right of use assets of $1.2 million. The domestic deferred tax assets consist of lease liabilities of $1.3 million, reserves and accruals of $0.5 million, compensation of $0.8 million and provision for credit losses of $0.4 million. The realization of deferred tax assets is dependent upon the likelihood that future taxable income will be sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. If actual results differ from these estimates and assessments, valuation allowances may be required. As of December 28, 2024, the Company had no foreign deferred tax balances associated with its Canadian operations and a deferred tax asset of $0.1 million associated with its German operations.

Current wording

In establishing the provision for income taxes and deferred income tax assets and liabilities and valuation allowances against deferred tax assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance and estimates of future earnings. As of January 3, 2026, the Company had domestic net deferred tax liabilities of $5.7 million. The domestic long term net deferred tax liability of $5.7 million includes $8.2 million in deferred liabilities offset by $2.5 million in deferred tax assets. The deferred tax liabilities consist of acquisition amortization of $4.6 million, prepaid expenses of $1.3 million, advance depreciation deductions of $1.2 million and right of use assets of $1.1 million. The domestic deferred tax assets consist of lease liabilities of $1.2 million, compensation of $1.0 million, and provision for credit losses of $0.3 million. The realization of deferred tax assets is dependent upon the likelihood that future taxable income will be sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. If actual results differ from these estimates and assessments, valuation allowances may be required. As of January 3, 2026, the Company had a negligible deferred tax asset, net balance associated with its Canadian operations.

Previous wording

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Germany, Philippines, Puerto Rico and Serbia. The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. The Company has no open Federal audits as of December 28, 2024. Except for limited exceptions, the Company is no longer subject to audits by state and local tax authorities for tax years prior to 2020. The Company is no longer subject to audit in Canada for the tax years prior to tax year 2020. The Company is under audit in Canada for tax years 2021 and 2022. The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2019.

Current wording

The Company conducts its operations in multiple tax jurisdictions in the United States, Canada, Germany, Philippines, Puerto Rico and Serbia. The Company and its subsidiaries file a consolidated United States Federal income tax return and file in various states. The Company had no open Federal audits as of January 3, 2026. Except for limited exceptions, the Company is no longer subject to audits by state and local tax authorities for tax years prior to 2021. The Company is no longer subject to audit in Canada for the tax years prior to tax year 2021. The Company is no longer subject to audit in Puerto Rico for the tax years prior to tax year 2020.

Previous wording

The Company pays bonuses to certain executive management, field management and corporate employees based on, or after giving consideration to, a variety of financial performance measures. Bonuses for executive management, field management and certain corporate employees are accrued throughout the year for payment during the first quarter of the following year, based in part upon anticipated annual results compared to annual budgets. In addition, the Company pays discretionary bonuses to certain employees, which are not related to budget performance. Variances in actual results versus budgeted amounts can have a significant impact on the calculations and therefore on the estimates of the required accruals. Accordingly, the actual earned bonuses may be materially different from the estimates used to determine the quarterly accruals.

Current wording

The Company pays bonuses to certain executive management, field management and corporate employees based on, or after considering, a variety of financial performance measures. Bonuses for executive management, field management and certain corporate employees are accrued throughout the year for payment during the first quarter of the following year, based in part upon anticipated annual results compared to annual budgets. In addition, the Company pays discretionary bonuses to certain employees, which are not related to budget performance. Variances in actual results versus budgeted amounts can have a significant impact on the calculations and therefore on the estimates of the required accruals. Accordingly, the actual bonuses earned may be materially different from the estimates used to determine the quarterly accruals.

Previous wording

Additionally, changes in government regulations could result in prohibition or restriction of certain types of employment services or the imposition of new or additional employee benefits, licensing or tax requirements with respect to the provision of employment services that may reduce the Company’s future earnings. There can be no assurance that the Company will be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs as a result of any of the foregoing.

Current wording

Additionally, changes in government regulations could result in prohibition or restriction of certain types of employment services or the imposition of new or additional employee benefits, licensing or tax requirements with respect to the provision of employment services that may reduce the Company’s future earnings. There can be no assurance that the Company will be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs because of any of the foregoing.

Previous wording

The consulting and employment services market is highly competitive with limited barriers to entry. The Company competes in global, national, regional and local markets with numerous competitors in all of the Company’s service lines. Price competition in the industries the Company serves is significant, and pricing pressures from competitors and customers are increasing. 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.

Current wording

The consulting and employment services market is highly competitive with limited barriers to entry. The Company competes in global, national, regional and local markets with numerous competitors in all the Company’s service lines. Price competition in the industries the Company serves is significant, and pricing pressures from competitors and customers are increasing. 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.

Previous wording

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. The fiscal years ended December 28, 2024 (fiscal 2024) and December 30, 2023 (fiscal 2023) consisted of fifty-two weeks each.

Current wording

The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. The fiscal years ended January 3, 2026 (fiscal 2025) and December 28, 2024 (fiscal 2024) consisted of fifty-three and fifty-two weeks, respectively.

Previous wording

Revenue. Revenue increased 5.8%, or $15.1 million, for the fiscal year ended December 28, 2024 as compared to December 30, 2023 (the “comparable prior year period”). Revenue increased $6.4 million in the Specialty Health Care segment, increased $11.8 million in the Engineering segment and decreased $3.1 million in the Life Sciences, Data and Solutions segment. See Segment Discussion for further information on revenue changes.

Current wording

Revenue. Revenue increased 14.7%, or $41.0 million, for the fiscal year ended January 3, 2026, as compared to December 28, 2024 (the “comparable prior-year period”). Revenue increased $21.4 million in the Specialty Health Care segment, increased $24.0 million in the Engineering segment, and decreased $4.4 million in the Life Sciences, Data and Solutions segment. See Segment Discussion for further information on revenue changes.

Previous wording

Cost of Services and Gross Profit. Cost of services increased 6.5%, or $12.1 million, for the fiscal year ended December 28, 2024 as compared to the comparable prior year period, primarily due to the increase in revenue. Cost of services as a percentage of revenue was 71.3% for the fiscal year ended December 28, 2024 and 70.9% for the comparable prior year period. See Segment Discussion for further information regarding changes in cost of services and gross profit.

Current wording

Cost of Services and Gross Profit. Cost of services increased 16.5%, or $32.9 million, for the fiscal year ended January 3, 2026, as compared to the comparable prior-year period, primarily due to the increase in revenue. Cost of services as a percentage of revenue was 72.5% for the fiscal year ended January 3, 2026, and 71.3% for the comparable prior-year period. See Segment Discussion for further information regarding changes in cost of services and gross profit.

Previous wording

Selling, General and Administrative. Selling, general and administrative (“SGA”) expenses were $56.8 million for the fiscal year ended December 28, 2024 as compared to $52.2 million for the comparable prior year period. As a percentage of revenue, SGA expenses were 20.4% for the fiscal year ended December 28, 2024 and 19.8% for the comparable prior year period. See Segment Discussion for further information on SGA expense changes.

Current wording

Selling, General and Administrative. Selling, general and administrative (“SGA”) expenses were $60.9 million for the fiscal year ended January 3, 2026, as compared to $56.8 million for the comparable prior-year period. As a percentage of revenue, SGA expenses were 19.1% for the fiscal year ended January 3, 2026, and 20.4% for the comparable prior-year period. See Segment Discussion for further information on SGA expense changes.

Previous wording

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 for the fiscal year ended December 28, 2024 as compared to the comparable prior year period, primarily due to an increase in interest expense, net. Interest expense increased due to increased borrowing and increased interest rates.

Current wording

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 $0.9 million for the fiscal year ended January 3, 2026, as compared to the comparable prior-year period, primarily due to an increase in interest expense, net. Interest expense increased due to increased average borrowing.

Previous wording

Income Tax Expense. The Company recognized $6.9 million of income tax expense for the fiscal year ended December 28, 2024, as compared to $5.4 million for the comparable prior-year period. The consolidated effective income tax rate for the current period was 34.0% as compared to 24.2% for the comparable prior-year period. The effective fiscal 2023 income tax rates as of December 28, 2024, were approximately 29.4%, 21.1% and 10.8% 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 Serbian 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 primary reason for the increase in the consolidated effective rate in the current period was due to permanent tax differences in the United States during the fiscal year ended December 28, 2024.

Current wording

Income Tax Expense. The Company recognized $5.7 million of income tax expense for the fiscal year ended January 3, 2026, as compared to $6.9 million for the comparable prior-year period. The consolidated effective income tax rate for the current period was 26.0% as compared to 34.0% for the comparable prior-year period. The effective fiscal 2025 income tax rates were 25.8%, 26.0%, 28.2% and 25.2% in the United States, Canada, Europe, and the Philippines, 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 primary reason for the decrease in the consolidated effective rate in the current period was due to a change in unrecognized tax benefit in the United States during the fiscal year ended January 3, 2026.

Previous wording

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 2024 effective tax rate may vary from the estimate depending on the actual operating income earned in various jurisdictions, the potential availability of tax credits, and the exercise of stock options and vesting of share-based awards.

Current wording

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.

Previous wording

Specialty Health Care revenue of $142.7 million for the fiscal year ended December 28, 2024, increased 4.7%, or $6.4 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 fiscal year ended December 28, 2024, was $117.7 million as compared to $103.0 million for the comparable prior-year period. Revenue from non-school clients for the fiscal year ended December 28, 2024, was $25.0 million as compared to $33.2 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 $3.2 million in the current period as compared to $9.8 million in the comparable prior-year period. Gross profit increased by 6.5%, or $2.6 million, to $42.5 million for the fiscal year ended December 28, 2024 as compared to $39.9 million in the comparable prior-year period. Gross profit increased due to an increase in revenue and gross profit margin. Gross profit margin for the fiscal year ended December 28, 2024, increased to 29.8% compared to 29.3% for the comparable prior-year period. The increase in gross profit margin was primarily attributed to a greater mix shift to school services as opposed to non-school services, offset by increased unemployment tax rates in New York. Specialty Health Care experienced operating income of $11.7 million for the fiscal year ended December 28, 2024, as compared to $13.5 million for the comparable prior-year period. The primary reason for the decrease in operating income was an increase in SGA expense to $30.3 million for the fiscal year ended December 28, 2024 compared to $26.0 million for the comparable prior-year period. SGA expense increased primarily due to sales and recruiting infrastructure investments expected to generate higher growth rates for the 2024/2025 and 2025/2026 school years and a higher allocation of corporate SGA expense.

Current wording

Specialty Health Care revenue of $164.1 million for the fiscal year ended January 3, 2026, increased 15.0%, or $21.4 million, compared to the comparable prior-year period. The increase in revenue was driven by the Company’s school clients, while a decrease in revenue from the Company’s non-school clients offset it. Revenue from school clients for the fiscal year ended January 3, 2026, was $141.4 million as compared to $117.7 million for the comparable prior-year period. Revenue from non-school clients for the fiscal year ended January 3, 2026, was $22.7 million as compared to $25.0 million for the comparable prior-year period. The decrease in non-school revenue was primarily driven by the reduction in revenue of $1.6 million from a lost contract with a corrections facility and from a large long-term care group where the Company deliberately reduced services, which generated $1.8 million in the current period as compared to $3.2 million in the comparable prior-year period, offset by miscellaneous increases to other non-school clients. Gross profit increased by 11.4%, or $4.9 million, to $47.4 million for the fiscal year ended January 3, 2026, as compared to $42.5 million in the comparable prior-year period. Gross profit increased due to an increase in revenue, offset by a decrease to gross profit margin. Gross profit margin for the fiscal year ended January 3, 2026, decreased to 28.9% compared to 29.8% for the comparable prior-year period. The decrease in gross profit margin was primarily attributed to normal fluctuations. Specialty Health Care experienced operating income of $22.8 million for the fiscal year ended January 3, 2026, as compared to $19.9 million for the comparable prior-year period. The primary reason for the increase in operating income was the increase in gross profit, offset by an increase in SGA expense to $24.2 million for the fiscal year ended January 3, 2026, compared to $22.2 million for the comparable prior-year period. SGA expense increased primarily due to investments in sales and recruiting infrastructure to support revenue growth.

Previous wording

Engineering revenue of $96.5 million for the fiscal year ended December 28, 2024, increased 13.9%, or $11.8 million, compared to the comparable prior-year period. The increase in revenue comprised the following: an increase in Energy Services revenue of $15.1 million, offset by decreases in Aerospace revenue of $0.2 million and Industrial Processing revenue of $3.1 million. Aerospace revenue decreased primarily due to a contract reduction for the Company’s major outsourcing client. The Company believes the decrease in Industrial Processing revenue was mainly due to the irregular timing of large contracts with its Industrial Processing clients. Gross profit increased by 9.4%, or $1.9 million, compared to the comparable prior-year period. Gross profit increased because of the increase in revenue, offset by a decrease in gross profit margin. The gross profit margin of 23.4% for the current period decreased from 24.3% for the comparable prior-year period. The decrease in gross profit margin was primarily due to lower utilization and mix-shift associated with fixed-price project revenue from the Energy Services group. The Engineering segment experienced operating income of $4.5 million for the fiscal year ended December 28, 2024, compared to $3.5 million for the comparable prior-year period. Operating income increased due to the increase in gross profit, offset by an increase in SGA expense. The Engineering segment’s SGA expense of $17.4 million increased from $17.0 million, primarily due to a higher allocation of corporate SGA expense.

Current wording

Engineering revenue of $120.5 million for the fiscal year ended January 3, 2026, increased 24.9%, or $24.0 million, compared to the comparable prior-year period. The increase in revenue included increases in Energy Services revenue of $12.3 million, and Aerospace revenue of $11.9 million, offset by a decrease in Industrial Processing revenue of $0.2 million. Energy Services revenue increased primarily because of increased activity from EPC projects. Aerospace revenue increased primarily due to expansion with new clients. The Company believes the decrease in Industrial Processing revenue was mainly due to the irregular timing of large contracts with its Industrial Processing clients. Gross profit increased by 21.5%, or $4.8 million, compared to the comparable prior-year period. Gross profit increased because of the increase in revenue, offset by a decrease in gross profit margin. The gross profit margin of 22.7% for the current period decreased from 23.4% for the comparable prior-year period. The decrease in gross profit margin was primarily due to a change in mix associated with EPC project revenue from the Energy Services group and Aerospace revenue. The Engineering segment experienced operating income of $14.6 million in the current period as compared to $10.1 million for the comparable prior-year period. Operating income increased due to the increase in gross profit, offset by an increase in SGA expense. The Engineering segment’s SGA expense of $12.0 million increased from $11.9 million, primarily due to expenses associated with efforts to grow revenue and gross profit.

Previous wording

Life Sciences, Data and Solutions revenue of $39.2 million for the fiscal year ended December 28, 2024, decreased 7.3%, or $3.1 million, compared to the comparable prior-year period. The Company primarily attributes the decrease in revenue to the timing of large projects and a deemphasis of the Company’s legacy staffing business. Gross profit of $14.7 million for the fiscal year ended December 28, 2024, decreased 9.0%, or $1.5 million, compared to $16.2 million for the comparable prior-year period. Gross profit decreased due to the decrease in revenue and a decrease in gross margin. Gross profit margin for the fiscal year ended December 28, 2024, was 37.5% as compared to 38.2% for the comparable prior-year period. The Company attributes the gross profit margin decrease to normal fluctuations in high margin project work. The Life Sciences, Data and Solutions segment experienced operating income of $6.5 million for the fiscal year ended December 28, 2024 compared to $6.6 million for the comparable prior-year period. The decrease in operating income was primarily due to the decrease in gross profit and a small increase in SGA expense of $0.1 million, offset by a remeasurement of contingent consideration of $1.8 million for the fiscal year ended December 28, 2024.

Current wording

Life Sciences, Data and Solutions revenue of $34.8 million for the fiscal year ended January 3, 2026, decreased 11.3%, or $4.4 million, compared to the comparable prior-year period. The Company primarily attributes the decrease in revenue to the timing of large projects and a deemphasis on the Company’s legacy staffing business. Gross profit of $13.2 million for the fiscal year ended January 3, 2026, decreased 10.5%, or $1.5 million, compared to $14.7 million for the comparable prior-year period. Gross profit decreased due to the decrease in revenue. Gross profit margin for the fiscal year ended January 3, 2026, was 37.8% as compared to 37.5% for the comparable prior-year period. The Company attributes the gross profit margin increase to normal fluctuations in high margin project work. The Life Sciences, Data and Solutions segment experienced operating income of $6.3 million for the fiscal year ended January 3, 2026, compared to $8.8 million for the comparable prior-year period. The decrease in operating income was primarily due to the decrease in gross profit of $1.5 million and a discrete benefit of $1.8 from the remeasurement of contingent consideration in the comparable prior-year period, offset by a small decrease in SGA expense of $0.2 million and amortization of intangible assets on $0.7 million in the comparable prior-year period.

Previous wording

The following non-GAAP measures, which adjust for the categories of expenses described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures (“Adjusted operating income”, “EBITDA”, “Adjusted EBITDA”, “Adjusted net income”, and “Adjusted diluted net earnings per share”) are useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations on an ongoing basis and to enhance investors’ overall understanding of our current financial performance and period-to-period comparisons. We believe these non-GAAP financial measures are performance measures and not liquidity measures. These non-GAAP financial measures should not be considered as an alternative to net income or operating income as indicators of performance. In addition, neither EBITDA nor Adjusted EBITDA takes into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Current wording

The following non-GAAP measures, which adjust for the categories of expenses described below, are non-GAAP financial measures. Our management believes that these non-GAAP financial measures (“Adjusted operating income”, “EBITDA”, “Adjusted EBITDA”, “Adjusted net income”, and “Adjusted diluted net earnings per share”) are useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations on an ongoing basis and to enhance investors’ overall understanding of our current financial performance and period-to-period comparisons. We believe these non-GAAP financial measures are performance measures and not liquidity measures. These non-GAAP financial measures should not be considered as an alternative to net income or operating income as indicators of performance. In addition, neither EBITDA nor Adjusted EBITDA accounts for changes in certain assets and liabilities, as well as interest and income taxes, which can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Previous wording

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows

Current wording

The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows ($ in thousands):

Previous wording

Operating activities provided $6.2 million of cash for the fiscal year ended December 28, 2024 as compared to providing $12.5 million in the comparable prior year period. The major components of cash provided by operating activities in the fiscal year ended December 28, 2024 and the comparable prior year period are as follows: net income and changes in accounts receivable, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued payroll and related costs, and deferred revenue.

Current wording

Operating activities provided $19.0 million of cash for the fiscal year ended January 3, 2026, as compared to providing $6.2 million in the comparable prior-year period. The major components of cash provided by operating activities in the fiscal year ended January 3, 2026 and the comparable prior-year period are as follows: net income, and changes in accounts receivable and contract assets, net of provision for credit losses, the net of transit accounts payable and transit accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and accrued payroll and related costs, and deferred revenue.

Previous wording

For the fiscal year ended December 28, 2024, the Company experienced net income of $15.0 million as compared to $16.8 million for the comparable prior year period. An increase in accounts receivables in the fiscal year ended December 28, 2024, used $7.3 million of cash as compared to using $20.6 million in the comparable prior year period. The Company primarily attributes this increase in accounts receivables for the fiscal year that ended December 28, 2024, to these factors:

Current wording

For the fiscal year ended January 3, 2026, the Company reported net income of $16.3 million, compared with $13.3 million in the comparable prior-year period. An increase in accounts receivable and contract assets, net of provision for credit losses in the fiscal year ended January 3, 2026, used $4.2 million of cash as compared to using $7.3 million in the comparable prior-year period. The Company primarily attributes the increase in accounts receivable and contract assets, net of provision for credit losses, to an increase in revenue of $86.5 million for the Company’s fiscal fourth quarter of 2025 as compared to revenue of $76.9 million in the fourth quarter of fiscal 2024, offset by more efficient collection results in the current period.

Previous wording

While highly variable, the Company’s transit accounts payable typically exceeds the Company’s transit accounts receivable, but absolute amounts and differences fluctuate significantly from quarter to quarter in the normal course of business. The net of transit accounts payable and transit accounts receivable was a net payable of $16.6 million as of December 28, 2024 as compared to a net payable of $22.2 million as of December 30, 2023, using $5.6 million of cash during the fiscal year ended December 28, 2024. The decrease to net transit payable as of December 28, 2024 was due to normal fluctuations associated with several large, multiyear EPC projects. In a typical EPC contract, the Company receives significant cash upfront to fund equipment procurement and construction subcontractors throughout the project.

Current wording

While highly variable, the Company’s transit accounts payable typically exceed the Company’s transit accounts receivable, but absolute amounts and differences fluctuate significantly from quarter to quarter in the normal course of business. The net of transit accounts payable and transit accounts receivable was a net payable of $8.2 million as of January 3, 2026, compared with a net payable of $16.6 million as of December 28, 2024, with $8.3 million of cash used during the fiscal year ended January 3, 2026. The decrease in net transit payable as of January 3, 2026, was due to normal fluctuations associated with several large, multiyear EPC projects. Under a typical EPC contract or its subsequent amendments, the Company receives significant upfront cash to fund equipment procurement and construction subcontractors throughout the project.

Previous wording

Prepaid expenses and other current assets used cash of $3.7 million for the fiscal year ended December 28, 2024 as compared to providing negligible cash for the comparable prior year period. The Company typically attributes changes to prepaid expenses and other current assets, if any, to general timing of payments in the normal course of business. Since certain expenses are paid before a fiscal year concludes and are amortized over the next fiscal year, prepaid expenses and other current assets generally tend to increase at the end of a fiscal year and decrease during the first three quarters of the following fiscal year. The December 28, 2024 prepaid expense balance of $8.3 million included $3.1 million for domestic tax payments, as compared to $0.6 million as of December 30, 2023.

Current wording

Prepaid expenses and other current assets used cash of $0.7 million for the fiscal year ended January 3, 2026 as compared to using $2.4 million for the comparable prior-year period. The Company typically attributes changes to prepaid expenses and other current assets, if any, to the general timing of payments in the normal course of business. Since certain expenses are paid before a fiscal year ends and are amortized over the following fiscal year, prepaid expenses and other current assets generally increase at the end of a fiscal year and decrease during the first three quarters of the following fiscal year.

Previous wording

An increase in accounts payable and accrued expenses provided cash of $1.1 million for the fiscal year ended December 28, 2024 as compared to using $1.5 million for the comparable prior year period. The Company attributes these changes to typical fluctuations in the normal course of business.

Current wording

A decrease in accounts payable and accrued expenses used cash of $3.5 million for the fiscal year ended January 3, 2026, as compared to providing $1.1 million for the comparable prior-year period. The Company attributes these changes to typical fluctuations in the normal course of business.

Previous wording

Changes in accrued payroll and related costs used $1.3 million for the fiscal year ended December 28, 2024 as compared to using cash of $1.8 million for the fiscal year ended December 30, 2023. There are four primary factors that generally impact accrued payroll and related costs: 1) there is a general correlation to operating expenses as payroll and related costs is the Company’s largest expense group, so as operating costs increase or decrease, absent all other factors, so will the accrued payroll and related costs; 2) the Company pays the majority of its payroll every two weeks and normally has thirty-nine weeks in a fiscal quarter, which means that the Company normally has a major payroll on the last business day of every other quarter; 3) the timing of various payroll related payments varies in the normal course of business; and 4) most of the Company’s senior management participate in annual incentive plans and while progress advances are sometimes made during the fiscal year, these accrued bonus balances, to the extent they are projected to be achieved, generally accumulate throughout the year. A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year. The Company’s last major payroll for the fiscal year ended December 28, 2024 was paid on December 27, 2024.

Current wording

Changes in accrued payroll and related costs provided $0.8 million for the fiscal year ended January 3, 2026, as compared to using cash of $1.3 million for the fiscal year ended December 28, 2024. There are four primary factors that generally impact accrued payroll and related costs: 1) there is a general correlation to operating expenses as payroll and related costs is the Company’s largest expense group, so as operating costs increase or decrease, absent all other factors, so will the accrued payroll and related costs; 2) the Company pays the majority of its payroll every two weeks and normally has thirty-nine weeks in a fiscal quarter, which means that the Company normally has a major payroll on the last business day of every other quarter; 3) the timing of various payroll related payments varies in the normal course of business; and 4) most of the Company’s senior management participate in annual incentive plans and while progress advances are sometimes made during the fiscal year, these accrued bonus balances, to the extent they are projected to be achieved, generally accumulate throughout the year. A significant portion of these incentive plan accruals are typically paid at the beginning of one fiscal year, pertaining to the prior fiscal year. The Company’s last major payroll for the fiscal year ended January 3, 2026, was paid on December 26, 2025.

Previous wording

The Company’s deferred revenue balance as of December 28, 2024 was $4.2 million, compared to $1.9 million as of December 30, 2023, providing cash from operations of $2.3 million for the fiscal year ended December 28, 2024. The increase was associated with upfront payments for future labor associated with the Company’s EPC contracts.

Current wording

The Company’s deferred revenue balance as of January 3, 2026, was $14.8 million, compared to $4.2 million as of December 28, 2024, providing cash from operations of $10.6 million for the fiscal year ended January 3, 2026. The increase was primarily associated with upfront payments for future labor and associated with the Company’s EPC contracts.

Previous wording

Investing activities used $2.6 million of cash for the fiscal year ended December 28, 2024 as compared to using $2.5 million in the comparable prior year period. Investing activities used $2.6 million for the purchase of property and equipment in the current period as compared to using $2.9 million in the prior year comparable period. The fiscal year ended December 30, 2023 included a discrete gain associated with the Company’s sale of its Canada Power Systems business unit.

Current wording

Investing activities used $1.6 million of cash for the fiscal year ended January 3, 2026 as compared to using $2.6 million in the comparable prior-year period. Investing activities used $1.6 million for the purchase of property and equipment in the current period, as compared to using $2.6 million in the prior-year's comparable period.

Previous wording

Financing activities used $4.8 million of cash for the fiscal year ended December 28, 2024 as compared to using $3.9 million in the comparable prior year period. The Company made net borrowings under its line of credit of $4.2 million during the fiscal year ended December 28, 2024 as compared to net borrowings of $22.0 million in the comparable prior year period. During the fiscal year ended December 28, 2024, the Company used $1.3 million to pay withholding taxes upon the vesting of equity grants, in connection with which a commensurate number of vesting shares was retired. The Company used $7.8 million to repurchase and retire shares of its common stock during the fiscal year ended December 28, 2024 as compared to using $25.8 million in the comparable prior year period. The Company generated cash of $0.7 million from sales of shares from its equity plans for both periods presented. The Company did not pay contingent consideration in the current period as compared to paying $0.3 million in the comparable prior year period.

Current wording

Financing activities used $19.0 million of cash for the fiscal year ended January 3, 2026 as compared to using $4.8 million in the comparable prior-year period. The Company made net payments under its line of credit of $10.3 million during the fiscal year ended January 3, 2026 as compared to net borrowings of $4.2 million in the comparable prior-year period. The Company used $7.4 million to repurchase and retire shares of its common stock during the fiscal year ended January 3, 2026 as compared to using $7.8 million in the comparable prior-year period. During the fiscal year ended January 3, 2026, the Company used $0.9 million to pay withholding taxes upon the vesting of equity grants, in connection with which a commensurate number of vesting shares were retired. During the fiscal year ended December 28, 2024 , the Company used $1.3 million to pay withholding taxes upon the vesting of equity grants. From the sale of shares from its employee stock purchase plan, the Company generated cash of $0.6 million and $0.7 million for the current year and comparable prior-year period, respectively. The Company paid $0.2 million in contingent consideration in the current period as compared to no payments in the comparable prior-year period.

Previous wording

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, typically borrowed in fixed 30-day increments, 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

Current wording

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, typically borrowed in fixed 30-day increments, 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 fiscal years ended January 3, 2026 and December 28, 2024 was 6.3% and 6.6%, respectively.

Previous wording

Borrowings under the line of credit as of December 28, 2024 and December 30, 2023 were $35.0 million and $30.9 million, respectively. At December 28, 2024 and December 30, 2023, there were letters of credit outstanding for $7.4 and $2.0 million, respectively. At December 28, 2024 and December 30, 2023, the Company had availability for additional borrowings under the Revolving Credit Facility of $22.6 million and $12.1 million, respectively.

Current wording

Borrowings under the line of credit as of January 3, 2026 and December 28, 2024 were $24.7 million and $35.0 million, respectively. At January 3, 2026 and December 28, 2024, there were letters of credit outstanding for $13.2 and $7.4 million, respectively. At January 3, 2026 and December 28, 2024, the Company had availability for additional borrowings under the Revolving Credit Facility of $27.1 million and $22.6 million, respectively.

Previous wording

The Company’s liquidity and capital resources as of December 28, 2024, included accounts receivable and total current asset balances of $78.0 million and $97.0 million, respectively. Current liabilities were $53.6 million as of December 28, 2024 and were exceeded by total current assets by $43.4 million.

Current wording

The Company’s liquidity and capital resources as of January 3, 2026, included accounts receivable and contract assets, net of provision for credit losses and total current asset balances of $81.2 million and $99.9 million, respectively. Current liabilities were $53.9 million as of January 3, 2026 and were exceeded by total current assets by $46.0 million.

Previous wording

All restricted share awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock award grant date and ultimate share distribution date. As of December 28, 2024, there were no accrued dividends.

Current wording

All restricted stock and stock unit awards contain a dividend equivalent provision entitling holders to dividends paid between the restricted stock award grant date and the ultimate share distribution date. As of January 3, 2026, there were no accrued dividends.