DLH Holdings Corp (DLHC) 2010 Q3 法說會逐字稿

Greetings and welcome to TeamStaff, Inc.'s third-quarter and nine months financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Donald Weinberger. Thank you, Mr. Weinberger. You may begin.

Thank you, Christine. Good morning and thank you all for joining us for today's conference call to discuss the third quarter and nine month financial results for TeamStaff. I am Don Weinberger, managing member of Wolfe Axelrod Weinberger Associates, Investor Relations Counsel on behalf of TeamStaff.

On the call with me today is Mr. Rick Wasserman, Chairman of the Board of Directors of TeamStaff; Mr. Zach Parker, President and Chief Executive Officer of TeamStaff; and Ms. Cheryl Presuto, Chief Financial Officer.

Before I turned the call over to our host, let me take a moment to read the forward-looking statements. This conference call may contain forward-looking statements as defined by the Federal Securities laws. Statements in the conference call regarding TeamStaff, Inc.'s business which are not historical facts are forward-looking statements that involve risks and uncertainties.

TeamStaff's actual results could differ materially from those described in such forward-looking statements as a result of certain risk factors including but not limited to our ability to continue to recruit and retain qualified healthcare and logistics professionals at reasonable costs; our ability to attract and retain sales and operational personnel; our ability to enter into contracts with the United States Government on terms attractive to us and to secure orders related to those contracts; changes in the timing of the US Government orders for our placement of healthcare and logistics professionals; the overall level of demand for services; our ability to successfully implement our strategic plan; our ability to manage growth effectively; our ability to leverage our cost structure, the performance of our management information and communications systems; the effect of existing or future government legislation and regulation; our ability to grow and operate our business in compliance with these legislations and regulations; the impact of medical malpractice and other claims asserted against us and disruption; or adverse impact to our business as a result of a terrorist attack our ability to carry out our business strategy; the loss of key officers and management personnel that could adversely affect our ability to remain competitive; other regulatory and tax developments; the effect of recognition by us of an impairment to goodwill; the effect of adjustments by us to accruals for self-insured retention; and other one-time events and other important factors.

For a discussion of such risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see risk factors in the Company's periodic reports filed with the SEC. The information in this conference call should be considered accurate only as of the date of the call. TeamStaff expressly disclaims any current intention to update any forecasts, estimates, or other forward-looking statements contained in this call.

With that out of the way, let me turn the discussion over to Rick Wasserman, Chairman of TeamStaff. Rick, please proceed.

Thank you, Don, and good morning, everyone. Thank you for joining today's conference call. Before I hand the call over to Zach for his formal remarks, on behalf of the Board of Directors, I would like to formally thank Cheryl Presuto for her dedication and devotion to TeamStaff during her tenure with the Company. Cheryl was a tremendous resource for our team and our Company and the Board and we greatly appreciate her dedicated effort and the hard work that she put into our Company.

Culminating with our recent closing of our new financing agreement, which is a very wonderful resource we now have available to us and which will help us be successful, a tremendous resource to help our success in the future. And Cheryl was the key person and the front person on negotiating that and bringing that to closure and we greatly appreciate her effort, and she leaves us well positioned for success in the future. We greatly appreciate her professionalism and wish her well in her new business opportunities.

That being said, the Board (technical difficulty) have been aggressively pursuing a replacement and are currently reviewing several candidates. We are confident we will find a suitable replacement in a quick fashion and expect a smooth transition.

I would like to now turn the call over to Zach.

Thank you, Rick. To reiterate Rick's comments, I would personally like to thank Cheryl as well for the hard work, the 110% effort which she has consistently given the Company and to me and the dedication to TeamStaff that she has demonstrated on a regular basis. Cheryl, I want to wish you well in your new position.

I will begin by providing an overview of our market conditions and highlights of our recent business performance. Cheryl will then provide the financial details and I will finish up with an outlook to our business strategy and key milestones.

The third-quarter results have begun to show the transformation of the Company to leverage the performance of TeamStaff GS to achieve the profitable growth and broader government services in the government services market sector. While the financial results on the surface may not reveal that picture, we believe we have begun to turn the corner this quarter, given the sequential quarterly improvements that we have made in revenue and gross margins as well as the reductions that we have demonstrated impacting the net losses.

This confirms that TeamStaff is on track to achieve its goals forecast, though a significant amount of work still remains ahead. We expect fiscal 2010 to be a year of transition and stabilization with a focus on preparing for profitable growth in our core and adjacent government services market.

While we continued to see a delay in some new solicitation activity by the government, we did experience increased solicitation activity during the third fiscal quarter as well as the current quarter in areas of -- particularly the revised strategic focus. In fact during the quarter ended June 30, 2010, the TeamStaff was awarded contracts with a potential value of $3.8 million, assuming all contract renewal options are exercised. This includes the previously announced Armed Forces Retirement Home contracting.

The resultant new business revenue for the third quarter of 2010 was about $300,000 or $0.3 million. This helped to offset some of the decrease in operating revenues from year-over-year due primarily to the government insourcing of nearly $1 million of labor under our existing contracts, reductions in overtime at certain government facilities, and the conclusion of our only commercial contract. Those items that Don referred to are listed in our filings.

While no assurances can be given that we will be granted additional government contracts, we have begun to identify and prepare for more contract proposals in areas within the scope of our revised strategic business plan, including logistics opportunities in particular within the Department of Defense.

While the standard bid cycle of 18 to 24 months are something still important to us, we are also looking at some low hanging fruit that has the potential to provide some rewards for us. In addition, we believe the government staffing business should remain stable in an economic downturn.

So we believe that (technical difficulty) presidential administration, there will be minimal reductions in government spending, support for social programs that benefit military personnel and veterans. We continue to monitor the US government stance on military spending. Case in point, just last week the Secretary of Defense, Robert Gates, addressed the concern for spending cuts and has begun to outline various initiatives like insourcing, contracting cutbacks, and base closures.

That being said, we believe that the competitive landscape within the Federal and Defense logistics arena will likely change with the large Tier 1 prime contractors being largely at risk. This will likely take -- this will likely place some pressure on margin for new awards. But the key to focus in on is that the service budgets as a whole will likely remain robust for the next several years.

In addition, we see vitality from the Department's Defense Logistics Agency and believe that both near-term and long-term opportunities exist here for TeamStaff.

With war fighters soon to return from two major offshore wars, much like you are seeing in the news today as we transition resources -- combat resources -- from Iraq into Kuwait and ultimately home here to Fort Lewis, TeamStaff is well positioned for stability and growth. Our significant share of the VA's consolidated mail, outpatient pharmacy or what we refer to as CMOPs business provides a cornerstone upon which we can build in this national priority area.

Continued government commitment in the form of new VA programs is on the horizon and with my seat on the Washington-based Veteran Affairs Task Force, we should be in position to anticipate and perhaps shape some of these future opportunities from the agency.

TeamStaff GS, Government Solutions, is expanding its reach by starting to bid on DoD contracts afforded to large businesses and on GSA's e-Buy portal in order to obtain requests for quotes and requests for proposals designed to allow federal buyers to request information, find sources, and prepare for RFQs, RFPs, online for various offers -- service offers through GSA multiple award schedules.

TeamStaff GS is evaluating opportunities to satisfy the staffing needs of other government agencies in addition to the VA and DoD as a means of horizontal expansion of our client base.

TeamStaff is also looking -- seeking to develop and maintain a nationwide network of teaming partners including small businesses in order to expand and diversify its service offerings. Recently though we have made several strides to assist us for the long term.

First, we have recently -- we were recently able to successfully secure, as Rick indicated, a new line of credit. I'm pleased with the amount secured and believe this new facility gives TeamStaff the financial flexibility necessary to continue its strategic focus on expansion into new government markets and to invest in the infrastructure required for successful growth.

I am also happy with our new lending partner, Presidential Financial, who has a strong understanding of our business, our markets, and I'm looking forward to a long-term relationship with them.

Another accomplish was the hiring of Bob Kaufman as our TeamStaff's Corporate Compliance officer and Director of Government Contracts. Bob is a key addition to my staff and as it has been important for awhile since this Company has had a strong government contracts business base and we have a -- the addition of one -- Bob has been a priority focus for us as we expand our business both in new and existing markets. Bob brings over 20 years of experience, much of it with some of our new peer group companies, and will oversee the Company's regulatory compliance activities and manage its government contracting efforts. And I'm glad and excited to have him on board.

At this point, I will turn it over to our CFO, Cheryl Presuto.

Thank you, Zach and Rick, for your kind words. My tenure at TeamStaff was eight years and it was my pleasure serving the Board and the shareholders.

I would like to turn to the financials now and briefly discuss the previously disclosed financial performance of the Company for the third fiscal quarter ended June 30, 2010.

TeamStaff's operating revenues for the three months ended June 30, 2010 were $10.1 million as compared to $11.3 million in the comparable quarter last year and $9.8 million for the previous quarter ended March 31, 2010. The decrease in operating revenues year-over-year is due primarily to government insourcing of selected positions under our existing contracts, reductions in overtime at certain government facilities, and the conclusion of our only commercial contract. This is offset by revenue from new business compared to the prior fiscal year period.

TeamStaff's gross profit was $1.3 million or 12.9% of revenues for the third quarter of fiscal 2010 as compared to $1.7 million or 15% of revenues for the third quarter of fiscal 2009. Several factors are impacting the decline in gross margin year-over-year.

As a result of current economic conditions, the Company continues to experience lower employee turnover rates than last year, resulting in increased vacation accruals for over 800 hundred contract employees at certain government facilities. The previously mentioned overtime restrictions imposed by these facilities affects gross profit as overtime earns a higher profit percentage than regular hours.

The Company also experienced adverse workers' compensation experience, and increased healthcare benefit costs in the current quarter.

SG&A expenses for the three months ended June 30, 2010 and 2009 were $1.8 million and $1.7 million respectively. The Company continues to invest in new business development at TeamStaff GS, incurring $100,000 in increased new business expense over the comparable period last year for additional sales and recruiting-related headcount and marketing expenses. To offset the spending, the Company continues with its cost-saving initiatives which have resulted in reduced headcount and (technical difficulty) revenue-generating departments and lower G&A costs due to the continued elimination of services that we deem to be non essential to growth or infrastructure.

Loss from continuing operations was $600,000 or $0.11 per basic and diluted share compared to income from continuing operations of $100,000 or $0.03 per basic and diluted share in the comparable quarter last year. And loss from continuing operations of $1 million or $0.20 per basic and diluted share for the previous quarter ended March 31, 2010.

At June 30, 2010, the Company had $1.2 million in cash. On July 29, 2010, the Company announced that TeamStaff Government Solutions, its wholly-owned subsidiary, entered into a $1.5 million loan and security agreement with Presidential Financial Corporation. The Company believes that it has adequate liquidity resources to fund operations in support of its working capital needs over the next 12 months.

I will now turn it back over to Zach for the remainder of his comments.

Thanks, Cheryl. Looking ahead to the remainder of fiscal 2010 and beyond, TeamStaff is on an accelerated transition to becoming a pure play government services business. As a result, some of our key goals for 2010 have been met -- contained operating costs; securing the line of credit; reshaping in-house resources to align with the government services market; to develop our infrastructure and tools to enhance success as we grow; and to develop a new strategic plan and a line of business development processes and resources accordingly.

While we have accomplished a lot, we still have ground to cover to drive both the top and bottom lines. I believe we are well (technical difficulty) on our way to help achieve these goals in a reasonable timeframe as we have begun to make changes in our infrastructure, policies and resources. Among those changes, we have begun implementation of the new enterprise resource planning system, ERP, that will allow us to track, monitor, and report costs and performance metrics that are required by government auditors and prime contractors which we are pursuing as teaming partners.

While we face substantial challenges in 2010, what remains in 2010, our customers are looking for increased productivity and affordability while they face greater fiscal pressure amidst growing mission requirements. I believe that we have a great opportunity ahead to meet the government market needs, to improve our competitiveness in these markets and sustain growth during this transitional period.

TeamStaff's GS unit contains an above-average performance record, actually an excellent performance record, and it is our goal to leverage this core business until its track record -- this core business unit's track record and to seek out adjacent markets with new clients that may have similar contract requirements.

While we may seek acquisitive prospects in the future, our main source of growth will be focused on organic means. By creating the proper protocols and channels in order to bid on new business within other government agencies, we will now be in a position to build a stronger contract backlog, which should enable us to increase our current revenue base in future years.

That concludes my formal remarks. I would now like to open the call for any questions. Operator, Christine, please proceed.

(Operator Instructions). There are no questions in the queue at this time. I would now like to turn the floor back over to management for closing comments.

Thank you for participating in today's conference call. As always, should you have any additional questions, please feel free to contact myself or Don Weinberger of Wolfe Axelrod Weinberger Associates. We thank you for your interest and support and look forward to speaking with all of you again in the coming months. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.