DLH Holdings Corp (DLHC) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 TeamStaff Inc. earnings and investor update conference call. My name is Carol and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mister Don Weinberger. Please begin.

Thank you, Carol. Good morning and thank you all for joining us for today's conference call to update investors. 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 Mister Zach Parker, President and Chief Executive Officer of TeamStaff, and Mister John Kahn, Chief Financial Officer. Before I turn the call over to our hosts, let me take a moment to read the forward-looking statements as required.

This conference call contains forward-looking statements as defined by the federal securities laws. Statements in this presentation regarding TeamStaff Inc.'s business which are not historical facts are forward-looking statements that involve risk and uncertainties. TeamStaff's actual results could differ materially from those described in such forward-looking statements as a result of certain risk factors and uncertainties including, but not limited to, its ability to continue to recoup qualified personnel at reasonable cost; its ability to obtain any needed financing; its ability to secure contract awards, including the ability to secure renewals of contracts under which it currently provides services; its ability to enter into contracts with the United States government agencies and other customers on terms attractive to it and to secure orders related to those contracts; the availability of government funding and budgetary constraints; the timing and availability of future government awards; changes in customer's priorities; the outcome of legal proceedings; its ability to implement strategic growth acquisition and integration strategies; its ability to leverage cost structures; the performance of management information and communication systems; the loss of key offices and management personnel that could adversely affect its ability to remain competitive; other economic, business and regulatory developments; and the effect of other events and important factors disclosed previously and from time to time in TeamStaff's filings with the United States Securities and Exchange Commission.

For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in forward-looking statements, see Risk Factors in the Company's periodic reports filed with the SEC.

The information in this presentation should be considerate accurate only as of the date it is given. TeamStaff expressly disclaims any current intention to update any forecast estimates or other forward-looking statements contained herein.

With that out of the way, let me turn the discussion over to Zach Parker, President and CEO of TeamStaff. Zach, please proceed.

Thank you, Don, for your hospitality. Good morning, everyone, and thank you for participating in today's conference call as we discuss our recent performance and first-quarter fiscal year 2011 results.

I would like to note that John and I will be following a slideshow presentation that can be accessed on our website, www.TeamStaff.com, under the Investor Relations section. It has also been filed with the SEC as a Form 8-K.

I will begin by providing a business update. John will then provide some financial details, and I will finish up with an outlook of our business strategy and then we will open the call up for questions and answers.

Let me say that we believe that our first-quarter results indicate that our turnaround is well underway, that we continue several efforts to further develop our key initiatives. During the first quarter of fiscal 2011, we expect to complete our -- we complete our transition, we create a financial stability consistent with our strategic plan, and we will begin to implement our accelerated and long-term growth strategies targeting adjacent logistics in healthcare market segments.

These are important factors towards driving shareholder -- enhanced shareholder value.

John will also address some liquidity measures that would have been implemented to give us the necessary financial stability and flexibility to implement our plan.

Moving to slide number six, many of our key goals for 2010 have been met, containing operating costs, securing a new line of credit, reshaping in-house resources to align with the government services market, and in addition, hiring very significant key hires which we began, of course, with the Board hiring myself. And since then we have added a Corporate Compliance Officer, an Executive Vice President of Corporate Development, and a new Chief Financial Officer. Assist in us going forward in the new business efforts will be John Armstrong.

John is currently working a deal for us today and will not be able to join us on today's call, but I look forward to introducing to you all -- to him in the near future. John joined us as TeamStaff's Executive Vice President of Corporate Development with over three decades of in-depth experience, both in the military and the defense industry, both public and private. He is responsible for strategic alliances, customer relationship management, business development and account management, communications and branding, strategic pipeline development and the management of that pipeline for the Corporation.

John is a distinguished, retired U.S. Army colonel, Medical Services Corps with an impressive track record of growth in healthcare and logistics. John is a perfect fit with TeamStaff's new strategic direction and has already hit the ground running.

Having this new management team in place with our efforts focused on broadening the Company's initiatives in the government services market, this is key for TeamStaff's future success. While in the interim the financial results do not currently reflect the groundwork we've put in place, we have made significant progress in preparing the Company for larger and longer term contract wins with the Department of Defense and making the Company capable of expanding into the broader logistics space.

In doing so, we will increase our backlog which will be an important metric for assessing the health of the Company.

The next slide, slide number seven, reveals part of our strategic plan, which is to diversify our revenue base over the next several years. First, we believe we have a solid chance at competing given our outstanding performance record which I will allude a bit in the next slide.

This outstanding track record, combined with some of our differentiators, have enabled us to focus on the adjacent market segments within the government services sector. Initially, we are focusing on bidding for profitable business that can show organic growth to both our top and bottom lines.

Towards that goal, we have created a healthy pipeline of addressable opportunities that give rise to great confidence in our growth prospects. I think this pipeline is fairly conservative in nature, but also fits closely with our core offerings and capabilities. And it is large enough that a modest win percentage should position us very nicely to make some major headway in improving our operating results.

Moving on to slide number eight. I would like to take a moment to highlight TeamStaff's excellent track record. TeamStaff's government services unit under Kevin Smith -- Kevin Wilson had developed an outstanding performance track record. As seen on this slide, this slideshows that recent contractor performance assessment report, or CPAR as we call it, with ratings and feedback.

In addition, TeamStaff has helped our clients to receive awards by the JD Powers and Associates, giving us the necessary industrywide performance recognition as we approach adjacent markets with new clients having similar requirements.

On to slide number nine, having completed an exhaustive review and analysis of our core competencies, prospective growth markets within the federal and DoD space and a competitiveness within the addressable markets, we have determined our three principal lines of business entering into the 2011 fiscal year as follows. One, logistics and technical services; two, healthcare delivery solutions; and three, contingency and staff augmentation services.

With regard to logistics and technical services, this line of business draws heavily upon TeamStaff's proven logistics expertise and processes in the areas involving supply-chain management, performance-based logistics, inventory management, statistical process control, packaging, handling, storage and transportation -- or PHS&T in the DoD vernacular -- and supply support operations. We process approximately 275,000 transactions per day and fill approximately 110 million prescriptions per year.

In addition, this capability embodies program and project management, engineering and prototype fabrication services, equipment and non-tactical vehicle operations and maintenance; hazardous material management; facilities and shipyard support services and more.

In fiscal 2010, over 45% of our revenues were derived from this line of business.

Healthcare delivery solutions leverages a strong heritage in medical, pharmaceutical, and associated facilities management. TeamStaff is very well-positioned to expand and diversify its customer base in this area. TeamStaff developed tools such as the web-based practitioner resource allocation tool -- or PRAT, as we call it -- coupled with expert recruiting talent and tools that we had developed to provide for a degree of -- a significant degree of differentiation that are very much needed to compete in this space favorably.

Professional services have included critical care, medical surgical, emergency room and trauma center, behavioral health and brain -- trauma brain injury. [Allied Support] covers a wide range including MRI technology, diagnostic stenography, phlebotomy, lobotomy, dosimetry, physical therapy, pharmaceuticals and others. In fiscal 2010, over 45% of our revenue was derived from this line of business.

And lastly, contingency and staff augmentation. This line of business combines an ability to provide disaster and emergency response services with our legacy staffing and work force augmentation services. TeamStaff's outstanding track record of response during Hurricanes Rita and Katrina demonstrated our ability to support major federal and DoD opportunities in this area.

General staffing and selective recruitment process outsourcing are key components of this business area as well. Less than 5% of our fiscal 2010 revenue was derived from this line of business. I believe that streamlining the Company's strategic focus around these three lines of businesses serves to align our resourcing and investment decisions around a cohesive set of business objectives.

Equally important in this evolution is the decision to exit previous market focus areas with high barriers to entry and traditionally low margins for the Company. These included the commercial and federal IT space and some of the general administrative temporary staffing services.

The Veteran Affairs Department remains our largest customer, followed by DoD. Our new business development focus under John will seek to compete in a much larger scale for business opportunities in these three lines of business. Prior to the second quarter of fiscal 2010, over 90% of the Company's marketing sales and discretionary resources were directed towards the commercial nursing and temporary staffing business.

Today, as seen on slide number 10, we can see the desired shift in our business portfolio taking hold with the logistics and technical services representing 56% of our revenues during the first quarter of fiscal 2011 and healthcare delivery solutions representing 43%.

In addition to the shift in revenue mix, one can also see on slide number 11, the improvements in sequential revenues on a quarterly basis with the trend line heading in the right direction. As you can see, especially given the first-quarter results, we have made many necessary changes to the transition and I believe that we are now prepared for continued growth. In addition, we have streamlined our costs.

Before I turn the call over to John Kahn, our Chief Financial Officer, I would like to take a moment to formally introduce him. John brings over 25 years of financial experience to TeamStaff and prior to joining TeamStaff, he served as CFO of Financial Asset Management Systems, an American capital-backed government and business services group.

Additionally, John has over a decade of experience as CFO and extensive experience in publicly traded organizations. John began his career with what is now BAE Systems before joining Arthur Andersen.

John is a certified public accountant, a certified information technology professional and a member of the Institute of Certified Public Accountants. John is responsible for all elements of accounting and finance for the organization and is also assisting us in our efforts to grow the business. And I am pleased to have him as part of our team.

At this point, I will turn it over to our CFO, John Kahn.

Thank you, Zach. For the purpose of brevity, I would like to focus on the first-quarter results for the period ended December 31, 2010, as this is the most recent financial data available to shareholders.

Slide 13 shows the financial highlights for the first quarter of fiscal 2011. The Company's revenue for the three months ended December 31, 2010 was $10.6 million, sequentially up from $10.2 million in the fourth quarter and slightly lower as compared to $10.8 million in the comparable quarter last year, resulting from net reductions in headcount and associated overtime at a number of government facilities related to the federal government's insourcing certain positions.

The TeamStaff's gross profit from continuing operations for the three months ended December 31, 2010 and 2009 were $1.3 million and $1.4 million, respectively, which represents a decrease of $0.1 million. Gross profit from continuing operations as a percentage of revenue was 12.5% and 12.6% for the three months ended December 31, 2010 and 2009, respectively, and up sequentially from 11.1% in the fourth quarter of fiscal 2010.

Selling, general, and administrative expenses for the three months ended December 31, 2010 and 2009 were $1.6 million and $2 million, respectively, which represents an improvement of $400,000 or 20%. The improvement is primarily due to cost-cutting initiatives employed by the new management team and the non-recurring effects of fiscal 2010 officer severance expense.

Loss from continuing operations was $0.3 million or $0.07 per basic share compared to a loss from continuing operations of $0.7 million or $0.13 per basic share in the comparable quarter last year. There was no loss from discontinued operations in the first quarter of fiscal 2011 compared to a loss of $1.1 million or $0.23 per basic share in the first quarter of fiscal 2010.

Net loss for the three months ended December 31, 2010 was $0.3 million or $0.07 per basic and diluted share as compared to a net loss of $1.8 million or $0.36 per basic and diluted share for the three months ended December 31, 2009. This represents an improvement in net loss of $1.5 million, due to the operating and disposal offers related to TeamStaff Rx in fiscal 2010.

Now turning to slide 14, I want to briefly discuss our liquidity. On December 31, 2010, the Company had not quite $[0.6] million in cash and $14,000 in availability under the credit facility. Subsequent to the quarter's end, the Company's lender, Presidential Financial, further increased the maximum availability under the loan agreement by an additional $500,000 to $3 million, subject to eligible receivables.

The Company believes it has adequate liquidity [reserved] fund operations over the next 12 months in view of the additional funding committed by the Company's lender and other parties in February 2011 which was disclosed in our Form 10-K filing earlier in the week. As the slide indicates, we also will be relying on operating cash flow to testing certain liabilities and a number of cost reduction programs and initiatives.

That concludes my discussion of the financial information. I will now turn it back over to Zach for the remainder of his comments.

Thank you, John. Turning to the next slide, looking ahead to the remainder of fiscal 2011 and beyond, TeamStaff is on an accelerated transition to become a pure play government services business.

While we face substantial challenges in fiscal 2010, our customers are looking for increased productivity and affordability while they face greater fiscal pressures amidst growing mission requirements. I believe 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.

Looking ahead, we see lots of opportunities appearing from the Department of Defense and other agencies. This means that, despite some headwinds that continue to come out of these agencies, overall budgets remained strong and vibrant, particularly in the areas we have targeted. These will continue to open opportunities for TeamStaff.

Another big delta is that we have seen the government insourcing programs become on the decline as government agencies recognize the value in cost savings of outsourcing. As a result, we have been able to internally construct a robust qualified pipeline of opportunities in logistics and healthcare projects that TeamStaff can and will bid on in the coming months. This pipeline is, again, relative size to our core business -- our current core business and we believe that it can show great revenue growth by just winning a small percentage of this pipeline.

While we are seeking new contracts, we will also continue to remain steadfast in our effort to secure our core business as we face some major re-competes this calendar year. While it is always difficult to predict the outcome of re-competes, we do feel very confident that due to our track record, along with our competitiveness, we will be able to renew these contracts in the near term.

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

(Operator Instructions). Martin Saltzman of AFM Investments.

Hello. I just would like to make first a comment and then ask a question or two.

First, I certainly applaud the new hires and I believe you do have to build a good management team before you can do anything. So I applaud that.

My question is this. When -- and maybe I didn't hear this properly, but when did your bank grant you more of a line? Was that before the fourth-quarter numbers or after?

We've actually had two increases from our bank. They gave us -- the original line was $1.5 million subject to eligible receivables and that increased by $1 million to $2.5 million in November, so during the first quarter. And then we had an additional $500,000 increase, again subject to eligible receivables, that occurred in February. So after the end of the quarter. That was announced in our 10-K that was filed earlier this week.

Well, that's quite encouraging. So I'm actually quite happy to hear that. A little harder to get money when you are showing numbers like that in the fourth quarter and, obviously, these first-quarter numbers without the continued losses from discontinued operations, that's certainly an improvement.

So now it's a matter of executing and if I can, if I could just ask this, perhaps this is good for -- a good question for you, Zach. Can you just comment a little more about this last area which is the contingency staff augmentation? When you say -- it sounded like you were going to have personnel available for emergencies and that. Can you just expand upon that a little?

I can. Let me --. I will answer that, let me also dovetail onto your follow-up to John's comments with regard to the bank.

First of all, you are absolutely right. During today's economy it's very difficult to see the kind of movement that we've been really fortunate to have with our bank. And I would like to really give out some real positive comments with regard to the relationship that we've built with that bank. It certainly has done nothing but increase with John's presence with us because -- you know, in today's industry is very difficult to find these kind of increases and availability of cash.

Our Board of Directors has been real good at making sure that we take the appropriate steps to ensure that we keep that kind of relationship, and it has been very important for us. We really see ourselves in working in partnership and it's really a reflection of their leadership and that once we signed this agreement, they are in this thing for us to succeed, as well.

What we had to do on that regard was we sat down with them at the year end, and John and I went through not only where we close -- so we are looking at those numbers as you identified -- but we spent more of our time talking and briefing them on our strategic plan and our strategic way ahead. And with that, they -- we feel very comfortable that they also sense the degree of confidence that I have and that we have, and they, actually, they had their actions show that as well.

So I appreciate your observations in that regard. It is quite significant for us.

Your second part of the question was with regard to the contingency and staff augmentation. And the answer is, yes, with regard to the emergency nature of that.

One of the things that, as you well know, we've had is just a great legacy in is in staffing. And there's a broader market, particularly in the Defense arena where the -- I should say not only Defense, but also the Department of State where we have a responsibility to respond to both natural disasters as well as military challenges, both in theater and abroad.

And that is an area where we have really been able to draw upon some of the successes we've had with regard to our support during Katrina and Rita. Those were pretty much demand responses. That is where they had the emergencies. They were looking for a company that could deliver the right caliber of resources in a very short order in a very difficult environment.

So as these things occurred throughout the Defense space, both -- each service has its own contracting base to be able to help provide support which could be, in many cases, humanitarian to these kind of environments. So we are in the process of leveraging our great experiences on a somewhat smaller scale with the FEMA community and leveraging that to provide similar capabilities in partnership with large businesses offshore.

So a real good growth market for us in that offshore space and it is really one that ties very well to our legacy of staffing business.

And with that, is it challenging to try to keep people like this under your employment? Because it is not like you have a disaster to answer to every day. How do you keep people like that compensated?

Yes. Good question. It is a challenge for folks in the industry. We've really been blessed by having a -- with our legacy staffing industry, we've built a database tool, which we use to retain folks in what we call an on-call category. It is one that helped us to manage effectively some of the support we provide for our veterans today in the pharmaceutical area and most recent cases of that, of course, were when we had very difficult weather across the country in the last month or two. And it was very difficult for folks to be able to get in and out and access work.

And as you heard the numbers I mentioned earlier, we do a lot of -- provide a great deal of high-volume services to the veterans peers so we are able to draw upon resources from different areas to be able to get to and to manage our work force. And those are folks that, frankly, are -- you're right they have to have a commitment to us. We already have to have relationships. They already need to be screened and approved to be able to deliver those kind of resources.

So it's a real unique talent pool, a unique pool and ability to manage those kind of resources affords us the opportunity to grow in this space.

Yes. I think that is going to be the tough thing today is finding the people that you can get under your employment and I don't know if the move has been to try to -- especially for the healthcare professional -- to try to get permanent positions in places or whether you can grab people like this and they are at your ready when you need them.

Yes, it is. And we really need both because as you know, we have -- we have been blessed by a very low voluntary turnover rate. I mean, we are in the low single digits for voluntary turnover which means good things in keeping continuity and as we develop and train folks on some of the expertises required to do our job, it helps us to deliver the kind of customer satisfaction numbers that you are seeing.

But it is important for us to be able to be demand-responsive and have those folks that are also available and amenable to part-time, but also in the right caliber of each labor category so that we can deliver high-quality services.

So our team -- our management team under Kevin Wilson and his team just do a fantastic job of keeping those kind of talents at the ready. And we use some of our automated tools to allow us to do a quick reaction in that environment.

Zach, if you were to just look over your shoulder a second at the prior year, would you say that maybe the worst of the storm is over? That the fourth quarter and year end represented the carving out of some of the ills that the Company had and discontinued some of those problem sectors and you feel perhaps the worst is over?

We certainly hope so, Martin, and I certainly know what you are talking about. I wish I had that crystal ball for the future, but there are things that we don't know.

I thought you had a crystal ball.

John keeps warning me with this forward-looking statement. I can't address it.

Yes I know. When I read -- when I heard the forward-looking statements I felt like I needed calamine lotion.

But yes, we do really know that we have ironed out and put to bed a number of the kind of issues that would hurt us. And as you well know, we took some of those write-downs throughout fiscal 2010. So we are looking at really turning this corner very soon. We are in that stage of turning the corner. It is not completely turned. But we do see some real real good progress in the near term.

And last comment or question and this goes back prior to you coming aboard. But I believe there was some monies that were being set aside in escrow pertaining to the RS staffing matter. Is that settled? Is that still there? Do you have any comments on that?

I do. I would be happy to comment on that. It's -- you are absolutely right. We did have an offset against one point in the neighborhood of $1.8 million with the -- in terms of the RS note.

The most I can tell you is that our protocol has been that we needed to move from just carrying it as a note to, first, negotiations and then mediation and we had to have face-to-face negotiations. So we have been working through that process, while at the same time the other parties are dealing with facing some very serious federal litigation as well.

I can just tell you that we have not finalized that as yet. It is still a process in motion.

But it still could be something. I say could be. It still could be something that could be an asset to the Company.

Well, we think it could be a very positive force when we do get that matter resolved. You're absolutely (multiple speakers).

Alright. That's all I have and I truly wish you guys the best and I think you have assembled a nice team and look forward to future quarterly results.

You bet and thank you for participating with us.

(Operator Instructions). Gentlemen, at this time we don't have anybody else registered for questions if you would like to proceed with your closing remarks.

I think that will do it for us. I want to just thank everyone for your participation and thank you, Carol, for your service.

You're welcome, sir. Ladies and gentlemen, this concludes your presentation today. Thank you very much for joining us and have yourself a wonderful day.