R C M Technologies Inc (RCMT) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the RCM Technologies, Inc. second-quarter earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over to Mr. Leon Koypt.

Thank you. Good morning, and welcome to the conference call this morning. I am joined by two of my colleagues, Brian Delle Donne and Stanton Remer. Kevin's on vacation this week, so Stanton will cover the particular statistics and analysis that Kevin usually presents to you guys.

I will turn over the floor now to Stanton, who will present the financial information and some color on the performance.

Thank you, ladies and gentlemen, for joining our call. A portion of our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates and assumptions and information currently available to us.

The forward-looking statements relate to matters such as estimates used for developing pro forma financial information; the general health and direction of the market for IT services; our intentions as to changes to its product offerings; our concentration in the higher-margin service areas; our pursuit of strategic alliances, partnerships, clients and acquisitions; the increased propensity of clients to outsource IT functions; and the anticipated operating performance and financial condition. The statements reflect our current views with respect to future events, and are subject to a variety of risks and uncertainties and assumptions relating to operations and the results of operations, competitive factors and shifts in market demand. Any of these risks or uncertainties materialize, or if our underlying assumptions are incorrect, actual results may vary significantly from expected results.

The following factors will specifically affect our ability to achieve expected results. Unemployment in general economic conditions associated with the provision of information technology and engineering services and solutions and placement of temporary staffing personnel; ability to attract, train and retain qualified personnel who possess the skills and experience necessary to meet the staffing requirements of our customers and future customers; our ability to achieve and manage growth; and selecting suitable acquisition candidates, analyzing their businesses accurately and integrating acquired businesses into our Company, and other risks of our acquisition strategy. Many other factors also will affect our ability to achieve expected results.

The other factors we consider most pertinent are referred to in the periodic reports on forms 10-K, 10-Q and 8-K that we file with the SEC. We will be happy to send copies of these documents to you at your request. Otherwise, we encourage you to review the documents as they appear on the SEC Website. Thank you.

For the six months ended June 30th, 2003, making a comparison against 2002, the same period, revenues were 106 million, compared to 89 million. Net income was 3.3 million compared to 4.3 million. Income from continuing operations was 31 cents per share compared to 40 cents. Net income was 31 cents a share compared to 40 cents.

For the three months ended June 30th, revenues were 55 million compared to 44 million. Net income -- net earnings, if you will -- were 1.9 million compared to 2.1 million. Earnings per share -- this is all on a fully-diluted basis -- were 18 cents compared to 20 cents. If we take the first quarter ended March 31, our earnings were 13 cents. Our earnings in the second quarter were 18 cents. For the six months, as I said, 31 cents per share.

Our working capital at the end of June was 18,700,000. At the end of December, it was 16.5 million. We had a 2.2 million increase. Working capital at the end of March was 15,700,000; that's a $3 million increase. Our debt at the end of June was 3.3 million. Our debt at the beginning of the year was 7.4 million. Our current debt today, August 7, is only $1 million. So we've reduced our debt substantially. Our net debt at the end of December was approximately 2.8 million; obviously, our net debt today is zero.

Our cash from operations for the six months ended June 30th was 2.3 million, compared to the first quarter of 4.4 million; there was a reduction 2.2 million, essentially attributable to the growth in receivables, which was attributable to the increased sales in the quarter. Net worth at the end of June was 63,500,000 compared to the net worth at the end of December was 59 million; that's a 4.3 million increase.

I am very pleased to report that our tangible net worth at the end of June was 25,500,000 compared to the net worth at the end of December of 22.5 million; that's approximately a $3 million increase. EBITDA for the June quarter, the three months ended June, was 3.1 million; EBITDA for the three months was 2.6 million; for six months it was 5.7 million. We have completed our deferred consideration payments; going forward, there are none. There were none in the quarter. Our days outstanding were approximately 68 days on the accounts receivable.

I would like to give you some selected figures on the segmentation data, revenues by sector. Revenues in information technology for the second quarter were 25.8 million; for engineering, it was 24.6 million, and for commercial services it was 4.8 million, for a total of 55,200,000. The gross profit by segment for the second quarter was 7.4 million on information technology, engineering was 3.1 million and commercial services was 1 million, totaling approximately 11.4 million, for a total gross margin percentage of 20.6 percent.

Included in our revenues were subcontract billings on our Bruce Power contract in Canada, in the engineering sector. During the three months ended, the revenues in that re-bill process were 15,800,000. The gross margin on that was relatively small, essentially $125,000 on the revenues that were attributable to be the ComStock billings, which was 8.7 million. The margins without the ComStock re-billing would have been 24.2 percent compared to 23.83 percent in the first quarter, which is a 1.7 percent increase. The revenues in the second quarter were 46,500,000 without the ComStock billings, and in the first quarter it was 45 million. So that was a 3.3 percent increase.

Essentially, the statistics that I have -- I am going to turn it over to Brian Delle Donne.

Good morning, everyone. Thanks for joining us today. I will provide a little overview of some operational activities for the past quarter. Actually, for the past several quarters, we have been working to enhance our current offerings and to frame some new ones. The RCM sales strategy has been to continually find new ways to bring value to our clients.

One of the offerings we have been building has been targeted at the retail and distribution client sector, as we are assisting them in the area known as global data synchronization. There are some external drivers in the form of a sunrise date, January 1st, 2005, at which time global trade identification numbers -- that means bar-codes -- in North America need to conform to international standards. This is a large-scale staffing and supply chain optimization for retail product marketers.

The second offering that we have developed is our distributed development model, which we are branding as our Smart Shore (ph) solution. Many of our clients have been eager to take advantage of global pricing, so to respond, we have developed a delivery model that offers clients on-site delivery, delivery from our near shore centers in Canada and now from facilities in India. This allows clients to capitalize on the smartest development locations for their specific needs or criteria.

Internally, we continue to implement or upgrade our business systems to improve our efficiency and operational performance, such as the upgrade that is underway now on our customer relationship management system, the rollout last quarter of an internal knowledge management portal and the recent acquisition of a Web-based credit evaluation tool to better assess new and existing client credit risks.

This concludes my brief overview. We will open it up for questions.

Jerry Wille (ph), U.S. Bank.

I am calling with two questions. One is competitive comparisons. I wonder if you could give me a couple names of competitors that you kind of compare yourselves to? The second question relates to stock repurchase program, where you are at with that review of possibly doing a stock repurchase program?

I will let Brian speak to the competitive landscape that we encounter in the field, and I will respond to the stock repurchase plan.

Our competitors are rather diverse, often broken down on a geographic basis where, because of the range of our CM (ph) service offering, we encounter people from different sectors as competitors in different markets. I suppose most across-the-board companies likes Spherion, Paul Kenyon (ph), PGA are our competitors in the basic consulting business in the IT space. We compete with some of the larger specialized consulting firms around specific offerings, including sometimes competing with the manufacturers or the vendors of software such as Oracle or other implementation partners. The engineering competition is very widespread, oftentimes coming from your architect/engineering community as the primary competitors.

In addition to what Brian said, we have a number of privately held companies as well that we compete, small- to medium-sized regional companies in various markets. On the engineering side, we really don't have a great deal of competitors. It's a fairly limited field in the area of utility services, so we enjoy a little better marketshare penetration in the engineering area than we do, obviously, in the IT. With respect to the stock repurchase, we do not have any plans at the moment for a stock repurchase. We continue to feel that at the moment, the cash would be best deployed to fund the debt reduction and the growth that we have enjoyed over the last couple of quarters. That is not to say that this particular option is not being considered; we also always look at ways to improve the shareholder value. We believe for the moment that the cash is best deployed to build -- diversify and build the growth of the Company.

Paul Sunken (ph), Hummingbird Valley.

I guess I had a question on acquisitions. Is there anything imminent? Where do you currently stand with that process?

We continue to evaluate the opportunities that exist in the sector right now. As you know, we feel that there is a compelling case for consolidation that could be made in the sector. We do not have any specific target that we can discuss at the moment, but it's an ongoing process, something that we're very familiar with, very interested in and believe that there are -- within the next twelve months or so there will be some consolidation going on in the sector.

Also, can you give us some more coloring by sector in terms of the outlook?

I'll be happy to do it. Brian, you want to take it?

I can't start and then, if there is more that you want to add, Leon -- and I don't have a complete sort of universal coverage by sector, but I will say the highlights and the lowlights, if you will. Certainly, we have been feeling some pain at the state and local government levels, where state budgets are extremely strained and many projects have lost funding. It does not diminish the need for the programs or the projects, but the budget crunch that has befallen them has really impaired their ability to continue some of that work. Even at the federal level, where we read about much larger levels of spending, it really is in fits and starts, and has been problematic to build good visibility on a long-term basis.

Our pharmaceuticals sector, which has been a fairly strong space for us, has flattened a bit, as some changes in regulation have provided some easing of the motivation for some of the buying that had been driving our revenues. The utility sector continues to be flat domestically. We see a couple of bright spots over the past several quarters -- mortgage lending and some of the retail companies have been enhancing their supply chains. Of course, the mortgage lenders are dealing with tremendous turnovers, so we have some opportunities to help them.

Anything else?

No, I don't think so. I think that the best indication of our performance is to look at some of the historical quarters. And I think we continue to take advantage of the opportunities we have in the engineering sector, and redeploy our resources and offerings in the IT sector to take advantage of the marketshare.

Jim Devorak (ph), Sagen Capital.

Could you just repeat those numbers you gave for revenues and gross margins without the subcontractor pass-through business?

Yes. I'll give you the totals. The revenues without the ComStock sub for the first quarter ended March 31st was 45 million. For the second quarter, ended June 30th, it was 46,500,000. That was a 3.3 percent increase. The gross margin percentages, without the ComStock subcontractor, in the first quarter was 23.83 percent and in the second quarter was 24.23 percent. That was a 1.7 percent increase in gross margin percentage. The ComStock revenues in the first quarter ended March were 5.6 million, and in the second quarter ended June was 8.7 million.

Gentlemen, there are no further questions at this time.

Thank you very much for joining us, and we will see you at the end of the third quarter. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.