R C M Technologies Inc (RCMT) 2004 Q3 法說會逐字稿

Good morning. My name is Kelly and I will be your conference facilitator today. At this time I would like to welcome everyone to the RCM Technologies third-quarter earnings call. (OPERATOR INSTRUCTIONS) Thank you. Mr. Kopyt, you may begin your conference.

Thank you, Kelly. And good morning and thanks very much for joining us this morning. As usual, I'm joined by my 3 colleagues, Stanton Remer, Brian Delle Donne, and Kevin Miller, who will give you a little bit of a detailed presentation beyond the press release, and then we will turn over to the question-and-answer period. Stanton, would you please start?

Thank you, Leon, and thank you, everybody, for joining us on this Veterans' Day.

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 such matters as estimates used for developing pro forma financial information, the general health and direction of the market for IT and engineering services, our intentions as to changes to our product offerings, our concentration on higher-margin service areas, our pursuit of strategic alliances, partnerships, clients and acquisitions, the increased propensity of existing and potential clients to outsource IT and engineering 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, uncertainties, and assumptions relating to operations and results of operations, competitive factors and shifts in market demand. If any of these risks or uncertainties materialize or if our underlying assumptions are incorrect actual results may differ of vary significantly from expected results.

The following factors both specifically affect our ability to achieve expected results -- unemployment and general economic conditions associated with the provision of information technology and engineering services and solutions and placement of temporary staffing personnel; our 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 will also 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 you copies of these documents to you at your request. Otherwise we encourage you to review the documents as they appear on the RCM Technologies website under investor relations. Thank you.

As you probably have read the press release, revenues for the 40 weeks, which is essentially the end of the third quarter ended October 2nd, was 128 million compared to 161 million. Net earnings was 2,431,000 compared to 5,100,000. Earnings per share was 21 cents versus 48 cents.

For the 13 weeks ended October 2nd compared to the 13 weeks ended September 27th '03, revenues were 31 million 41 million compared to 55 million. Net earnings were 766,000 compared to 1,800,000. Earnings per share was 7 cents compared to 17 cents, all on a fully diluted basis.

The working capital at the end of October 2nd was 27,300,000 compared to the working capital at the beginning of the year of 23,900,000. It is a $3,400,000 increase. The working capital at the end of June was 25,900,000. That was a 1 million 4 increase. Our debt at the end of September was 4 million 9 compared to 7 million 3 at the beginning of the year. That was a decrease in our senior debt of 2 million 4. Our net debt at October 2nd was 1 million 9 compared to net debt of 2 million 1 at the beginning of the year. The cash flow from operations was 85,000, which was a significant increase during the third quarter because the cash flow from operations at the end of 6 months was 1 million 2 negative. So we had a 1 million 2 increase. The net worth at October 2nd was 70 million compared to net worth at the beginning of the year of 67 million. It was a 2 million 8 increase. Our tangible net worth October 2nd was 32 million compared to 29 million at the beginning of the year. It was a $2,800,000 increase.

Let me turn it over to Kevin who can give you more detail of the break (ph) segment data.

Good morning, everyone. I'll give you the segmentation data here.

Total sales for the quarter of 40,973,000 broken out as follows -- 22,803,000 for information technologies; 11,966,000 for our engineering group; and 6,164,000 for our commercial services group.

The gross margin on a blended basis was 24.34 percent. Our gross margin for information technology was 26.9 percent. The gross margin for engineering was 22.66 percent. And the gross margin for commercial services was 24.34 percent.

I just want to point out a couple of things for comparative purposes, as our investors and analysts take a look at the quarters for the year. I just want to remind everybody there are a different number of billing days and different number of weeks in the quarters. In Q1, that's a 13 week quarter with 63 billing days. In Q2, that is a 14 week quarter with 69 billing days. Q3 is also 13 weeks with 63 billing days. And then, I just wanted also to remind people in the fourth quarter, which is also a 13 week quarter, there will be 61 billing days. We actually have an extra holiday in there because we're recognizing New Year's Day which is on a Saturday. We're recognizing it on December 31st, so all of our employees have the Friday off and we'll have an extra holiday in 2004 as compared to 2005. And obviously that will impact our billings in the fourth quarter.

That's all I have to say.

Kelly, I think we are ready to go to Q&A.

(OPERATOR INSTRUCTIONS) At this time there are no questions.

Did you say there's no questions?

Yes, sir. I'm sorry. You do have a question from Dominique Marshall (ph).

Good morning. I was just hoping you guys can give a little bit of update on the tone of business and the outlook, especially some of the big contracts that you have been talking about in previous quarters that you have been working on.

We continue to be optimistic on the strength of our pipeline. There's been some additional developments of some of the major contracts, especially the 1 in Canada. I think because of the scope expansion and some changes in project management team there's been a little bit of a delay, but we continue to be assuredly optimistic about the fruition of that particular contract. There are a number of other contracts, both in Canada and US, that probably will be decided within the next 30 to 60 days. And again, we feel that they were contracts that RCM will have some participation in.

Has there been -- have any the large significant contracts that you were talking about in previous quarters gone away or has there just been delays?

They have not gone away. There have been delays in awarding and changes in scope.

And on a large Canadian contract, what are you thinking about in terms of timing at this point?

You're talking about the contract in Canada?

Yes.

I think it will probably be probably the first quarter of this year. I mean of '05.

That doesn't sound terribly dissimilar to what yew talked about on the last call. But there has been a little bit of push-back?

I wouldn't consider it push-back, but when you're talking about a $3 billion project, almost a $3 billion project, there is a lot of things that need to be put in place prior to the commitments on the part of the client. And I think they just want to make sure that when that commitment is made there's no delays and changes in work scope.

On the smaller contracts that might be coming in 30 to 60 days, will those be potential revenue for the fourth quarter? And if so, how meaningful are we talking?

I would not consider them to be meaningful contributions to the fourth quarter. I think by the time we reach the full staffing and project strength it will probably be the first quarter of '05.

Any other updates on tone of business? You guys talked about Smart Shore the last couple of calls. Progress there?

Brian, would you like to give an update on Smart Shore?

Sure. The effort continues very aggressively in RCM, and projects are being identified and being added to our sales funnel. It is a competitive arena that we're participating in. And when deals do come into the sort of development phase, they're turning out to be highly negotiated, which means that they're taking a lot longer to bring to closure. And so the pipeline continues to build. Deals are fairly slow at moving through it.

And to your earlier question, if any deals were to close now would they have a meaningful impact, frankly the deals that we're talking about now are actually looking at January or mid-January start-ups. So this period now is bringing things into closure, and then clients looking to start the work just on the other side of the new year, recognizing that Decembers are typically pretty slow from wanted to get work started in.

Given that it sounds like any bigger deals are going to be off into the first quarter, what can we expect for the fourth quarter? Just kind of a continuation on what we've seen in the past few quarters or might there be additional softness?

I think that's a pretty good assumption. We did see some slight momentum towards the end of the third quarter, but you have to bear in mind that in the fourth quarter not only do we have more holidays, but also you tend to see a lot more vacation, even on the days where we're open for business, so to speak. So I think at this time, and obviously we're only a couple of weeks into the fourth quarter, but at this time the information that we have is that we are going to be looking at probably a flat quarter, adjusted for the number of billing days as compared to the last 3 quarters -- flat in terms of revenues and flat in terms of operating income as well.

Can you give me the number of billing days again for the second, third and fourth quarters?

Sure. In the second quarter it was 69 billing days. For the third quarter we had 63 billing days. And for the fourth quarter there's 61.

So back on the last conference call I believe you said that you expected the third quarter and the fourth quarter to be fairly flat from the second quarter. And you would continue to have that expectation?

Yes.

Thank you.

(OPERATOR INSTRUCTIONS) Jerry Well (ph).

Good morning, guys. I'm wondering what has happened in your industry as far as merger activity, if any. And the second part of my question would be what are you looking at as far as trying to maximize shareholder value over the next -- besides obviously growing your revenue and cash flow. Any other strategic things you have discussed?

There's been a couple of mergers. The sector has not been really that busy in the merger or acquisitions, but there has been a couple of public combinations, as well I think 1 or 2 privately-held acquisitions. I believe there's a number of companies in the sector that would be looking to -- at some of their strategic alternatives, whether mergers or acquisitions. But the situation is still not very clear because until the sector fully recovers and the demand increases, there's just not enough confidence in pulling some of the larger deals.

In terms of the shareholder value, we continue to practice our fiscal fitness and reducing the debt and looking for a way to improve the margins going forward. And I think some of the projects that we are looking at in the pipeline should have that contribution.

Just as a follow, if I could, and I won't pin you to any numbers, but I think there is 1 analyst -- I think Bill Sutherland (ph) follows you. Are you pretty comfortable with his -- is he pretty on top of the analysis of the Company?

As you can imagine, we're not looking at analyst numbers and verifying or not verifying those numbers. We don't do that. What I can tell you is that Bill talks to the Company regularly, and I think he has a real good grasp of the Company and is a real good analyst. But in terms of talking about his numbers, that's not something I can do.

Thanks guys.

At this time there's no further questions.

I think we will conclude the presentation for this morning and we will reconvene with everyone at end of the fiscal year. Thank you very much for joining us.

This concludes today's conference call. You may now disconnect.