R C M Technologies Inc (RCMT) 2005 Q1 法說會逐字稿

Good morning, my name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the RCM Technologies first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. [OPERATOR INSTRUCTIONS]. Thank you. Mr. Kopyt, you may begin your conference.

Thank you, Jamie. Thank you for very much for participating in our call this morning. I am joined by two of my colleagues, Stanton Remer and Kevin Miller who'll present their respective portions of our presentation. We'll begin with Stanton and follow with Kevin.

Thank you, Leon. Good morning, everyone.

I have to read this script for you following our earnings release. Our presentation in this call will contain certain 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 and engineering services, our intentions as to changes to our product offerings, our concentration and 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 anticipated operating performance and financial condition. The statements reflect our current views 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 vary significantly from expected results.

The following factors will 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 would 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 RCM Technology website under the investment relations tab. Thank you.

I believe -- I would assume that you all have the press release. I will not burden you with each line item. Revenues were 41 million -- 44 million compared to 41 million, an increase of approximately 2.8 million. The working capital increased April -- at 3/31, the April 2nd close, it was the actual date, it increased $846,000. The current debt level at April 2nd was 6.4 million. It was an increase of 1.5 million. The net debt was 4.6 million, an increase of 2 million. The cash flow from operations was a use of 1.8 million. The net worth of the Company is 71 million, an increase of $848,000. Our tangible net worth also went up by 848,000. The EBITDA for the three months ended April 2nd was 1.7 million, compared to the comparative period of 1.6 million. The CapEx for the quarter was $266,000 compared to the comparative period of $95,000.

I'm going to -- I'm going to turn it over to Kevin Miller who will give you some detailed information about the segment data and sectorial data. Kevin?

Good morning, everyone.

Total sales were 44.082 million, and that is broken out as follow -- as follows. Information technology 24,651,000. Our engineering group did 11,763,000. And our commercial services group did 7,667,000. The blended gross margin was 22.93%. Our gross margins in our information technology group were 26.7. The gross margin in our engineering group with 16.75%, and the gross margin in our commercial services group was 20.31%.

Okay. Amy, we can open up for question and answer period.

Thank you. [OPERATOR INSTRUCTIONS]. Nelson Obus, Wynnefield.

Yes. You have some vague -- hi there, Leon. You have some vague forward-looking language in here, the key of which is looking forward to a period of more sustainable growth, reasonably likely over the longer term. Okay. Could you kind of elaborate on that a little bit in terms of why you have some guarded optimism in regard to the future?

Well, there's still a number of sectors that the visibility's obscured. I think it's probably as schizophrenic as the market is. But there are a number of sectors that have shown an upward momentum, such as life sciences, manufacturing distribution, health care, banking and finance. So one of these days we'll see growth exhibiting in all the sectors. So that's the purpose for some of the guarded optimism.

And the utility arena is -- is on deck to kick in again with our -- with our big customers, is that correct?

Utility arena in Canada continues to be exciting. But the bids are due in June. And we don't know how long it's going to take for the client to make up their mind. It could be a week, it could be a month, it could be several months. But finally, the proposals are due in June.

Okay, thanks.

Thank you. [OPERATOR INSTRUCTIONS]. Bill Sutherland, Boenning & Scattergood.

Morning, guys.

Morning, Bill.

Morning.

A little color, perhaps on the direction in the engineering group this recent quarter, and how things are going from a new business perspective?

Well, yes. I mean, Leon touched on the new business a little bit. We have a proposal for the large Bruce contract due in -- sometime in June. It's anyone's guess as to how long it's going to take them to make a decision. And obviously we're hoping that we're one of the vendors that are selected. And believe that we have a very good chance of winning an engagement there. But obviously, until we've -- until we win that engagement, we haven't won it. But we're moving along in some of the events that needed to take place in order for that bid to get out to the various vendors, is finally out.

So certainly the pipeline in engineering is very good. Not only in our utilities sector in the power systems, but also in the aerospace area our pipeline is pretty nice as well. What you're seeing in the first quarter, unfortunately, is a real soft patch for our project work. Basically, our project work in the -- in the first quarter was extremely low. And what you're seeing is a -- depressed gross margins as a result of the transition. Because you're looking at almost purely staffing revenues in the first quarter. Certainly, if we realize some of these projects that we believe we have a real good chance of winning over the next couple of quarters, we certainly expect those gross margins to come up. In addition, you're going to see the natural boosting of the margins in the third and the fourth quarter that we normally see just because statutory -- reaching statutory limits.

Does that answer -- fully answer your question, Bill?

Well, I was kind of curious beyond just Bruce. The visibility that you have in the engineering pipeline, and was there anything that occurred in terms of bookings that would start to impact in Q2?

No. I don't think you're going to see any major impact in Q2. It's unlikely. We may see a little bit of an impact. We're more looking towards Q3 and Q4. As far as Bruce is concerned, that certainly isn't going to hit in Q2. It's possible if every -- if they make a quick decision that it could impact in Q3. But it's more likely to be Q4. There are other projects, however, that we are working on that could impact the Q3. And it's certainly our expectation that the margins in Q3 will be considerably better than they were in the first quarter. But I don't think we're going to see any major jump in Q2 as it pertains to engineering.

So just moving, then, to IT, which had a bit of a pickup. Does it feel sustainable, and why? Or why not?

Well, I think it's sustainable at the current levels, yes. We believe that the -- that the current level of sales is sustainable, and we hope to see some modest growth going forward. The reason for that is just -- as Leon touched on, some of the sectors that we're focussed on we feel have some strength to them.

Which were the best ones? I wasn't clear from IT -- from Leon's comments?

I think the best ones are the life sciences, the manufacturing distribution, banking and finance. Those are the best. And obviously health care. But that's not related exactly to the IT.

And -- a -- more of a -- more of a -- are you selling more solutions, or is it pretty much just supplementing?

These are solutions. These are initiatives in the solutions area.

Okay. And then in commercial, briefly, is there further office expansion there? And was that number 7067 in revenue, Kevin?

It was 7.667 million in revenue.

667. Okay.

And that growth is primarily coming from our health care group, which is doing very well.

And remind me. You're now in how many markets with health care?

Well, we're in -- we're in --

Three markets.

-- we're in New York, Philadelphia and Bethesda.

And Bethesda. Okay.

With a particularly strong presence in -- obviously, in New York because that's where we've been for many, many years. And we've made some pretty nice inroads in the Philadelphia market as well. The D.C. market's been a little slow.

So you're going to stick with the corridor for this year, do you think?

In terms of expanding it anywhere else? Is that what you're asking?

Yes.

We don't have any plans right now to expand the health care group to any other cities. But it certainly would be able possible, I think, towards the middle to -- maybe more like the latter part of this year to consider that. But we don't have any concrete plans to expand that right now.

And about what part of the revenue level was health care? Approximately?

Yes, I don't have that number in front of me.

Okay.

That's not something we typically release anyway.

Right. Right. Lastly, on the cash situation, what was -- you used up a little. I saw CapEx was up a bit. But what happened as far as use of cash, and what's the outlook on that?

Obviously, revenues are up. The receivables are up. We continue to have 80 -- about 85 days outstanding order on our AR, which is -- it's high on the high end because we have large receivables from one particular client that pays in large amounts. I guess every other month sort of situation. And we're constantly working on that. But the revenues are up approximately 3 million. And to carry that additional revenue, there was additional borrowing needed.

Okay. So it's sort of a status quo situation.

The payrolls are up as well, obviously.

Yes.

It's the good [inaudible - overlapping speakers] the cash flow constraint.

All right. Okay, thanks, guys.

Thank you. At this time there are no further questions.

All right, thank you very much for participating. And we'll see you next quarter.

Thank you. This concludes today's first quarter earnings conference call. You may now disconnect.