DLH Holdings Corp (DLHC) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TeamStaff, Inc. third-quarter 2011 earnings conference call. My name is Maria and I will be your Operator today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Mr. Don Weinberger, Investor Relations Counsel. Please proceed.

Thank you, Maria. Good morning, and thank you all for joining us for today's conference call. I'm Don Weinberger, Managing Member of Wolfe Axelrod Weinberger Associates, Investor Relations Counsel on behalf of TeamStaff. On the call with me today is Mr. Zach Parker, President and Chief Executive Officer of TeamStaff, and Mr. John Kahn, Chief Financial Officer.

Before I turn the call over to our host, let me take a moment to read the forward-looking statement. This conference call may contain forward-looking statements as defined by the federal securities laws.

Statements in this 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 and uncertainties, including but not limited to, our ability to secure contract awards, including the ability to secure renewals of contracts under which we currently provide services; our ability to enter into contracts with the United States government facilities and agencies on terms attractive to us, and to secure orders related to those contracts; the effect of existing or future government legislation and regulation; changes in government and customer priorities and requirements, including changes to respond to the priorities of Congress and the administration; budgetary constraints and cost-cutting initiatives; economic business and political conditions domestically; and the effect of other events and important factors disclosed previously and from time to time in TeamStaff's filings with the US Securities and Exchange Commission.

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 forecast, estimates, or other forward-looking statements contained in this call.

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, and good morning, everyone. Thank you for joining us today for our Quarterly Report. I'm truly excited to give you an opportunity to update you on our Company's progress. My plan is to first summarize the highlights of the third quarter of fiscal year 2011, and then hand the call over to John Kahn for a brief discussion of our financial results for the quarter. I will then conclude with my formal remarks with an overview of our progress on key strategic initiatives. Please go to slide five.

I'm very pleased with our progress, especially this past quarter, where we reported continued financial improvements and some major operational accomplishments. Financially speaking, our quarterly revenues increased 5% over the comparable quarter of the prior year, and were at their highest levels since re-focusing as a full government services contractor last year. We continue to maintain tight expense controls and recently completed our facility consolidation initiative. Also, our gross profit has improved for the fourth consecutive quarter.

On the operations front, our work with the Department of Veteran Affairs, or DVA, and other clients, continued to be exemplary. Our excellent performance record has enabled us to secure additional work with the DVA and should also prove valuable as we look to build our portfolio. Our core strengths and capabilities are already opening up new opportunities with our targeted market areas of healthcare and logistics.

For shareholders, this combination of operational excellence and fiscal management enables us to win major contract awards, grow revenues, increase earnings, and develop a robust pipeline of new business opportunities for the future. In short, drive shareholder value.

Please turn to slide six. The government services market certainly faces some stiff headwinds on the budget front. This year, the continuing resolution and the budget deficit gridlock has slowed program awards and funding. We are also attracting the potential impact of the budget debates and the deficit reduction plans. We know that the pressure on our clients to reduce spending will intensify in fiscal 2012.

The new Secretary of Defense, Mr. Panetta, has indicated that he supports the long-term actions to reduce the deficit while maintaining a strong national defense. Our discussions with Deputy Secretary of Veteran Affairs, Scott Gould, indicates, though, that there was a continued commitment to healthcare of our nation's veterans. The increased pressure on federal agencies to reduce spending presents a real opportunity for growth for TeamStaff, particularly as we leverage our productivity-enhancing differentiators -- differentiators such as our [SPOT-m] tool that we use in new business pursuits and partnerships.

Please turn to slide seven. During the third quarter, TeamStaff won a major renewal and expansion contract from the Department of Veteran Affairs, which is currently estimated at $140 million over five years. Being awarded this program is evidence of our customer's satisfaction and confidence in TeamStaff's performance and productivity.

Over the past decade, TeamStaff has worked very, very closely hand-in-hand with the Veteran Affairs to ensure our nation's veterans received their medications both quickly and accurately. We are aggressively leveraging these capabilities, which are opening doors to new prospects both near-term and long-term, and can be seen -- this can be seen with our SeaPort-e prime contract award, which was recently awarded to TeamStaff as a prime contractor.

This was a significant achievement for TeamStaff Government Solutions, and allows us access to bid on a large amount of services being procured via task orders issued under the SeaPort-e Program. And this strategic win is a top priority, Indefinite Delivery/Indefinite Quantity -- or, as we refer to it, ID/IQ -- contract vehicle for the Navy. We are currently qualifying a substantial amount of addressable new business opportunities for the SeaPort-e contract, both within the logistics and the healthcare lines of business. Also, today, we announced another new business ID/IQ, this one with the Army's Lifecycle Management Command.

We are pleased with these wins, as we continue to be mindful of and impacted by, a number of government awards that were delayed and moved to the right. However, we are encouraged by the momentum we have seen in the recent government procurement activity, and remain extremely optimistic about our future. More importantly, I like that these contract vehicles position us well within our strategically aligned markets -- the combination of the LogWorld contract, SeaPort-e, our new Army award, gives us a solid platform for bidding primarily into the logistics and technical services arena, while also opening up opportunities -- Navy opportunities -- in healthcare.

With the progress we have made with regard to infrastructure transformation -- many of which I've previously discussed -- these new business opportunities keep us on track and in alignment with our long-range strategic plan developed last year, which calls for a sustainable and profitable growth.

Please turn to slide eight. With that, I'll turn the call over to our CFO, John Kahn, for a more detailed discussion of our financial results for the third quarter of fiscal 2011. John?

Thank you, Zach. Looking at slide eight, revenues from TeamStaff's operations for the three months ended June 30, 2011 and 2010 were $10.6 million and $10.1 million, respectively, which represents an increase of $0.5 million, or 5% over the prior fiscal year period. These increases in revenues are due in part to the approximately $1.5 million on an annualized basis in new business awarded during the second quarter of fiscal 2011, in addition to expansion of work on existing contracts.

Gross profit for the three months ended June 30, 2011 and 2010 was $1.5 million and $1.3 million, respectively, which represents an increase of $0.2 million, or 15% over the prior fiscal year period. Gross profit as a percentage of revenue was 14.3% compared to 13.3%, looking at the three months ended June 30, 2011 compared to the three months ended June 30, 2010. And as Zach mentioned, we achieved a fourth consecutive quarter of increasing gross profit.

Selling, general and administrative, or SG&A, expenses for the three months ended June 30, 2011 and 2010 were $1.8 million, representing no change from the prior year. While expenses were flat in the quarter relative to the same quarter a year ago, we continue to move forward with cost-cutting initiatives to include an elimination of duplicate or non-essential positions; indirect travel restrictions; salary freezes; a temporary furlough program for some of the corporate workforce; and negotiating significant cost reductions with vendors; and other measures, including the recent consolidation of our facilities with the closing of our New Jersey office, and moving our headquarters to Atlanta, Georgia.

Loss from operations for the three months ended June 30, 2011 was $0.3 million as compared to loss from operations for the three months ended June 30, 2010 of $0.5 million. This represents an improvement of $0.2 million in results from operations from the prior fiscal period, which was partially derived from higher revenues and improved gross margin. Net loss for the three months ended June 30, 2011 was $0.1 million, or $0.02 per basic and diluted share, as compared to net loss of $0.6 million or $0.11 per basic and diluted share for the three months ended June 30, 2010.

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

Thank you, John. During the past 18 months, we have taken numerous steps in an effort to enhance the value of TeamStaff, and have fully focused our efforts, of course, on the government services market, where we have a proven track record of performance. We continue to believe that we can leverage this track record for excellent performance and our core competencies in developing growth markets within the federal and DoD space.

Again, I remain pleased with our accomplishments in this past quarter. We have more tasks at hand in order to complete the Company's turnaround. In the near-term, shareholders can expect us to continue to focus on keeping tight expense controls and improve upon our capital structure. That being noted, we have built an excellent platform for future growth opportunities, and are prepared to execute on our recent contract wins, and use them as strong references to seek out additional businesses in the year to come.

To summarize the third quarter of fiscal 2011 and subsequent weeks after the quarter's end, has been highly rewarding, and revealed several wins that have proven our ability and our hard work is paying off. I believe TeamStaff continues to turn the corner during this quarter, and we have laid the groundwork to grow the Company during fiscal '12. Our transition of top and bottom-line performance, combined with stellar operations and superior delivery across the Organization, are expected to yield the increase in value to our shareholders to which our proven management team has committed.

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

(Operator Instructions). [Dennis Pannulo, Lupine Partners].

Congratulations on another improved quarter. My question concerns your bid work. Last quarter, you had stated you had about $900 million out for bid. I was wondering if you could update us on current bids that are out?

Well, that's a good question, Dennis, and I appreciate your sticking with us. I actually don't have the -- do not have the new numbers in front of us. John Armstrong is, in fact, updating it because we've obviously had a few wins now that were previously in our to-be-awarded bucket.

But I can tell you that the pipeline is growing larger. We've just completed a -- the first-cut review of opportunities that we intend to qualify under the Navy SeaPort-e. It is substantial. And I can tell you that with some of those -- the bid pipeline shifting from pipeline to actual new contracts now, with what we're adding to that toolkit in that pipeline now, with a result of both SeaPort-e and the today-announced award with the Army TACOM, that number will go up -- particularly for FY -- the latter part of FY '12 and significantly in FY '13.

Well, you answered the second part of my question, because I was going to ask you about the Navy SeaPort-e, if you had begun putting out some bids for that particular contract win as well.

Yes.

Again, congrats on a great quarter and I love the direction that the Company is headed, and I'm sure -- what was the reason why -- I thought we were going to start that -- the VA contract July 1. What was the reason for it to be kicked out to October 1?

Yes, a combination of things. But as you probably well know, the federal government is not very fast at processing many things. And in our particular case, we currently have contract coverage through the end of this fiscal year, which goes through 30 September. So you've probably seen in our 10-K we're carrying the new start to be effective estimated 1 October.

Excellent. Guys, I appreciate all the hard work and, hopefully, we'll see you hit the profitability with a couple of new contracts and our share price will get where it truly belongs -- much, much higher.

Yes, we believe so as well. Thank you very much, Dennis.

(Operator Instructions). Richard Greulich, REG Capital.

(multiple speakers) A couple of questions. Just wanted to clarify. So you received during this quarter, the $270,000 from Florida?

We booked it in the quarter because we got an award of it in the quarter. It actually came in shortly afterwards, but it was shown as a receivable at the end of the quarter.

Okay. Let's see. I was curious as to SG&A going up quarter-to-quarter by about $200,000. What was involved there?

SG&A was flat quarter-over-quarter, I think. And I think we were better off on a year-to-date basis; but just roughly flat for the quarter.

Okay, I may have been mistaken there.

And of course, we're below plan, but we don't give guidance, so you're probably not referring to that number. (laughter)

Okay. I was looking in the 10-Q. It said there was about $100,000 of expense from the fact that the Zurich reinsurance reserve went up. I was trying to figure out where that showed up in the P&L.

Effectively, that would have been in the SG&A line. And that will be part of the reason we didn't go into it in the MD&A. But that would have been part of the reason we didn't have a decrease quarter-over-quarter, despite the cost savings.

Okay. And if I read the 10-Q correctly then, you're expecting from them -- and again, the next 12 months, which I assume is kind of a flexible targets -- but you're receiving from them a couple hundred thousand in current assets and a couple hundred thousand in current policy deposits -- is that how that works?

We have some assets on our -- we have assets on our books where we have given them collateral. And to the extent the actual claims are less than the collateral, then we're anticipating getting refunds. And so we've got a couple hundred thousand of prepaid assets that we're expecting in due course to get back. We have additional collateral out there with the current policyholders on the Workers' Comp policies.

But that's -- assumably, that's going to just be covering what's going to be needed with those policyholders?

Correct. But we reserve against what we anticipate the exposure being, so with Workers' Compensation policies, in the long haul, once the policies end up closing out, you expect to get your collateral back.

It also noted that -- and I think this was spent in the prior fiscal year. I think you spent a couple hundred thousand dollars upgrading your IT systems, to be able to bid on different kinds of contracts, whether it's fixed price or cost-plus, or whatever. And it noted that the DVA -- or DCAA audits those accounting systems before that you can actually get the contracts for them. Do they do that after you've already been awarded the contract and then they audit you? Or have you undergone some audits by them to say that your systems are okay?

Very good question and comment. Let me clarify a part of it and then answer the last part of the question. The clarification on the IT piece, what we put in largely last year on the IT side was what we call our mini-ERP system. And that was to allow us to be able to track and report our costs much more aligned and consistent with the government services and, i.e., as you say, DCAA. So we've implemented that and kind of declared victory on that component. What was driving that initially in the first year was on the finance and accounting side, largely the accounting modules.

Now with regard to -- the second part of your question had to do with our ability to be prepared for the DCA audits. And I'm very excited and happy to tell you that we just completed an independent review from a -- by a former DCA audit firm, of our systems. And our systems tested out very, very favorable in the last week's report. And we anticipate being able to survive and pass an actual DCA audit in the near-term.

That's important, for everyone else on the phone, because a lot of the new contracts that we're going to be -- in task orders, we're going to be bidding and winning on these new contracts -- will have a heavier component of cost-plus and cost-reimbursable natures. And so it's very important that we have our traceability and trackability of our costs, and reporting of our costs that are consistent with the DCA review. So we're excited about having passed that milestone, as well.

If that's the case, that more contracts will be skewed toward that manner of reimbursement, does that have any implication in terms of gross margins?

Well, it could, but we're expecting to have a balanced portfolio, a significant amount of both fixed price and cost-reimbursable. On the DoD side of the house, there's been significant pressures and movement towards an increasing amount of fixed price. So we'll see how that plays out. We're pretty selective in the contracts that we actually bid, but we're expecting to have a mixture of both in our portfolio.

Okay. And I was trying to figure out the interest expense in the quarter. It seemed high relative to the amount of actual debt that you had in the quarter. Are there other charges that get thrown into that category?

There have been some charges related to the RS Staffing, though, for example, that are going to come out in the fourth quarter. Our accounting requirements were to conduct everything up through the end of the third quarter as it had been done, and then to deal with things in the fourth quarter, because that's when we completed the agreement on the RS Staffing note.

So, in other words, like, when it says -- the line item says interest expenses, should that really -- could that be construed as finance charges, so to speak?

Effectively, yes.

I think that's about it. Congratulations on the new award.

Thanks, Rick, and we'll look forward to seeing you some time in the not-too-distant future.

Yes. Good. In a couple of weeks. Thank you.

(Operator Instructions).

Thank you, Operator.

Thank you. There are no further questions at this time. I'll turn the call back over to Mr. Parker for final remarks.

Well, I just want to thank you, everyone, for participating in today's conference call. As always, should you have any additional questions, feel free to contact either myself or John Kahn at the Company, 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 later in the year to discuss our fourth-quarter and the year-end results. That's all for now.

Ladies and gentlemen, that concludes today's presentation. All parties may now disconnect. Good day.