R C M Technologies Inc (RCMT) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for joining RCM Technologies first-quarter earnings conference call. Your host for today is Leon Kopyt. Mr. Kopyt, you may now begin.

Thank you, Cliff. Good morning, and welcome to the first-quarter conference call. As usual, I'm joined by two of my colleagues, Stanton Remer and Kevin Miller, who will provide some detailed information with respect to the financials. We will begin with Stanton's presentation followed by Kevin and then open up for the question-and-answer period. Thank you.

Thank you, Leon, and thank you, ladies and gentlemen, for your interest in RCM Technologies. 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 engineering services; our intentions as to changes to our product offerings; our concentration in the higher margin service areas; our pursuit of strategic alliances, partnerships, clients and acquisitions; increased propensity of existing and potential clients to outsourced IT and engineering functions and 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 any of 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; general economic conditions associated with provision on information technology, 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 and 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' Web site under Investor Relations. Thank you.

Our revenues for the 13 weeks first quarter March 31, 2007 were $54,500,000 compared to $47 million. Our gross profit was $12,400,000 compared to $12 million. Our SG&A, selling general and administration was 10,100,000 compared to 10,100,000, essentially the same for both comparative -- both periods. Depreciation and amortization was $354,000, essentially the same both periods. Interest expense was $7,000 in the first quarter compared to $65,000 in the comparative period.

In the first quarter ended March '07, there was an $800,000 income from a legal settlement. Income before taxes were $2.7 million compared to $1.5 million. Net income was 1.6 million compared to $811,000, which yielded $0.13 per share compared to $0.07.

Our working capital at March 31 was 41,100,000, up 2,200,000 from the year-end of December 31, which was 38,800,000. There was no senior debt at the end of December or at the end of March. It was zero on both dates. The cash from operations for the three months ended March 31 was $250,000 compared to the three months of a deficit of the comparative period in '06, which was 1.8 million. That is an improvement of over $2.1 million. The net worth at the end of March was $85,500,000 compared to the net worth at the end of December of $83,400,000, which is a $2,100,000 gain. The tangible net worth at March 31 was $45,600,000 compared to $43,400,000. Also, that was a $2,200,000 gain.

The days outstanding have also improved from the year-end. At the year-end I believe it was approximately 91 days and now at the end of March it was 82 days. I'm going to turn it over to Kevin Miller to give you a little additional sectorial information. Kevin?

Good morning, everyone. As David said, the sales for the quarter -- the total sales were $54,493,000. Broken out between our various sectors, $25,057,000 for our Information Technology group; $18,975,000 for our Engineering group; and $10,461,000 for our Commercial Services group. The blended gross margin percentage for the quarter was 22.74%. Broken out as follows -- 27.76% for Information Technology, 15.88 for Engineering; and 23.13% for our Commercial Services group.

Thank you, Kevin. Cliff, we are ready for the question-and-answer period, please.

(OPERATOR INSTRUCTIONS). Bill Sutherland.

Just noticed some slightly different trends in the segments and wanted to ask about the Engineering segment. Just if you can give us some color on the jump in revenue and then the impact on the gross margin in that quarter?

Well, the jump in revenue in the Engineering sector is primarily due to increases in our managed services and Power Systems USA. And it's both at least in Q1 impacting the sales upwardly. And, those margins tend to be a little bit lower. So, that is impacting the gross margins as well in the first quarter.

In addition, to that impact which is the major impact, there was a little bit of a lull in some of our project work -- particularly in our Aerospace group in the first quarter as compared to previous quarters, and that was replaced by more of our managed services time and materials work as opposed to some of our managed task work. So, that impacted the gross margins in the first quarter.

As far as going forward, we expect the gross margins to come up some and be closer to previous level that we saw last year. While we do not expect in the near term the sales to go down, we expect the sales to probably plateau in the near term and hopefully increase in the long term.

So, the mix of business is going to be exchanging this -- I mean this isn't long-tail kind of work that is in place in Q1, and that as you put more project work in, you get back towards that 18% gross margin towards the end of the year. Is that reasonable?

Yes, I think that's reasonable. I don't know if we will quite get there. It depends on how much of the lower margin managed services work we're doing, which is -- at an operating income level, is profitable, but has low gross margin. But that depends on (multiple speakers) how much of that work we're doing. There is a chance that work could increase also. So yes, I mean assuming that sales are somewhat flat going forward we would expect those margins to get up closer to the 17%, 18% range that you have seen the last couple of quarters.

Okay. And then the level of activity at the Bruce project?

That has remained fairly steady, certainly through the first quarter. The expectation is that it will be fairly steady in the second quarter. We are in the process of bidding on a few extra projects that would be in addition to what we're doing now, the major project. So there's a chance we could see an uptick in Q3 and Q4 and maybe the end of the second quarter. And that work would hopefully give us a little bit of a boost to gross margins as well. Because that work should come in at higher gross margins than the blended rates that you have seen in Q1 and even last year for that matter. So, right now it's kind of steady-state but we're pretty optimistic that going forward we will see that run rate increase.

Kevin, can you really remind us of what sort of your expectation was for Bruce as far as net revenue through the course of these plant conversions?

Bill, it's Leon. The level of ramp-up in Bruce, as we originally anticipated, did not occur. We were hoping that we will have about $1.5 million on a monthly basis of billing 1.5 to $1.7 million. I believe we are about $800,000 on a monthly basis right now. So but that simply expands the scope of the project through a longer period of time gives us an opportunity to remain with the client and hopefully expand the scope and participate in other work that is related and complementary to the things that we're doing.

So the size of your role, Leon, didn't change at all?

My role did not change (multiple speakers)

And you're hoping to increase it.

(multiple speakers) phasing it's expanding in some other allied and complementary areas. But, the important thing is that in the original ramp-up of -- as we anticipated, did not occur.

The last segment question I had (multiple speakers) I'm sorry?

And may not occur.

Yes. The last segment question I have is just commercial. I just noticed it was down a bit year-over-year in revenue. A little color there, please?

There's nothing specific there. Just day-to-day activities. There's not any one reason to sort of point to why it's down. I mean it's a half a day's sales!

But was it more of the commercial or more the health care? You know.

It's probably more -- a little of both, really. But it's probably a little bit more on the health care side. In health care, as you know, we have a major client, which is the New York City Board of Education and every year is a new year there. So, every September that starts over and everybody goes after the various work and we win what we win so to speak and we're doing extremely well there. But we just -- we were off a little bit if you compare Q1 of this year versus Q1 of last year.

In terms of the commercial services, as you probably know, I think that the market in Southern California for our services is probably a little bit softer right now than it was last year. I don't think it's anything to be alarmed about. But last year for commercial services in Southern -- traditional staffing in Southern California was just a very hot market and I don't think it's quite as hot right now as it was last year. Although, certainly, we're doing quite well there.

So, I mean -- it feels like it's just kind of sort of entering kind of a flattish trend. Is that a fair comment on kind of where it's going?

Yes, I think that's a pretty fair comment, especially as it pertains to our commercial services group. I think in the case of our health-care group, you know, we're optimistic that we're going to see some slight increases going forward.

Then, last, Stanton, the effective tax rate -- I actually have been using something higher than you used for Q1. Is Q1 an indicator of kind of where you're estimating for the year?

Yes, that would be a good synopsis. The FAS 123R expense is coming down which has the tendency to lower the effective tax rate.

(OPERATOR INSTRUCTIONS). Stephanie, Winfield Capital.

Good morning, Steve. (multiple speakers)

Steven, sorry.

Steve Douglas from Winfield Capital. What was the legal settlement related to?

Steve, the legal settlement is the malpractice case that RCM has against the two previous law firms. There were two law firms and two carriers involved. We've settled with one law firm and one carrier that are represented really as smaller liability -- as part of the case. So, we are continuing our assault on the larger law firm and the carrier and hoping that that will occur sometime this year towards the end of this year.

Same case, two different parties.

There are no more questions at this time.

All right. Thank you very much for participating in the conference call and we will reconvene at the end of the second quarter. Thank you.