R C M Technologies Inc (RCMT) 2007 Q2 法說會逐字稿

Thank you for joining RCM Technologies' second quarter earnings conference call. Your host for today is Leon Kopyt. Mr. Kopyt, go ahead.

Thank you very much for participating with us this morning. I am joined by [Stanton Remer], who will provide not only the financial information, but also segmentation in metallurgical data since Kevin took a week off at the shore. So let's get started Steve with our information please.

Thank you Leon and thank you ladies and gentlemen for joining our call. 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 an engineering services, our intentions as to changes to our product offerings, our concentration in higher margin service areas, our pursuit of strategic alliances, partnerships, clients and acquisitions, increased propensity of existing and potential clients to outsource IT and engineering functions and anticipated operating performance and financial condition.

These 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, 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 select 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 10K, 10Q and 8K 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 RCM Technologies' website under investor relations. Thank you.

For the 26 weeks ended June 30, the comparison is made against July 1, 2006; I'll refer to those numbers as '07 compared to '06. Revenues in '07 were $111 million compared to $96 million. Gross profit was $26 million compared to $24 million. Operating income was $4.9 million compared to $3.2 million. The income before taxes was $5.7 million compared to $3 million. Net income for the 26 weeks in '07 was $3.4 million compared to $2.7 million in '06.

The bottom line earnings per share, as published, is $0.28 compared to $0.22, but it's important to note in the '07 results there was an $800,000 legal settlement which is attributable for $0.04 a share, so on a pro forma, or rather normalized basis, it was $0.24; and in '06 there was a $1 million income tax credit, which was also nonrecurring. That was attributable to $0.08, so on a normalized basis it was $0.24 compared to $0.14, which is a 72% growth.

In the 13 weeks ended June 30, 2007 compared to July 1, 2006, revenues were $56.8 million compared to $49 million. Gross profit was $14 million compared to $12.2 million. Operating income was $3 million compared to $1.6 million. Income before taxes was $3 million compared to $1.6 million. Net income was $1.9 million compared to $1.9 million, which financially was $0.15 earnings per share compared with $0.15 in '06. However as stated previously, in the '06 period there was an income tax credit of $1 million attributable to $0.08 per share, so on a normalized basis, or comparative if you will, it was $0.15 per share in '07 compared to $0.07, which was 114% growth.

Some balance sheet flavor, our cash, we ended up the quarter at $6.9 million compared to $2.5 million in the beginning of the year, which was December 30, 2006. Our total assets were $109 million compared to $100 million in the beginning of the year. Our working capital at the end of June was $43.2 million compared to $39 million. Our total liabilities at the end of June was $21 million compared to $16.6 million. Our total equity was $87.7 million compared to $83.4 million. There is no debt at the end of June, as well as at the end of December, no debt was incurred during the quarter, at any time during the quarter.

I'll give you some sectorial information, revenues by sector in the second quarter; information technology was $27.2 million; engineering services were $18.3 million; and commercial services was $11.3 million for a total of $56.8 million. The gross profit by sector, on a dollar basis was $7.8 million for information technology; engineering was $3.3 million; and commercial services was $2.9 million. On a gross margin basis percentage, information technology was 28.6%; engineering was 18%; and commercial services was 25%, for an overall composite rate, or blended rate if you will, of 24.54%.

I guess we can open it up for questions now, Leon?

Yes. Cliff, could you please open the lines for questions?

(OPERATOR INSTRUCTIONS)

Our first question comes from Bill Sutherland, with Boenning & Scattergood; Bill, go ahead.

Good morning guys. The staffing group's been under a lot of pressure, at least in the stock market, related to a slowdown particularly in the BLS numbers for certain categories. I'm just curious what you're seeing most recently in your various staffing verticals that you all work in.

I think the (inaudible) market continues to experience schizophrenic demands conditions and that's one of the reasons why the core strategy of RCM has been continuing transformation and migration from a commoditized services operation to customer solutions, where we can create some proprietary offerings and produce some intellectual properties so that we can permit premium pricing for our services. We're doing that by bundling services systems tools and services into an integrated solution. So I think that's our core strategy, continue that migration so that we are not subject to any fluctuations or pricing pressures that currently or historically has existed in the staffing model.

Two follow ups Leon; one is in IT, well both IT and commercial, just in the pure staffing business, what kind of what are you seeing right now? And the second one is, in IT what is the mix now between staffing and the new value added, well not new, but the more value added solutions offerings?

I believe the total IT percentage of revenue is approximately 55% to 60%, of which 35 is staffing and 30 is solution, so it's almost 50/50.

Almost 50/50 now, okay.

What was your other question Bill?

Just the most current trends that you are seeing in those businesses that still are just staffing, whether it's IT or commercial.

Well I think, you know there is more emphasis on the asset based services, meaning the infrastructure and integration. The European market is maturing, so unless you bring some additional functionality into the existing system to improve the efficiency and reliability in the operating infrastructure. So those are some of the services that remain in the IT and I think that we are migrating and rotating our capabilities in that area. But again I'm emphasizing the transformation of our model into more premium services that are not subject to fluctuation of demand.

Is that where most of your, as you look at your proposal pipeline for IT solutions, increasingly that's where your bids are?

Yes.

Okay. So in engineering, you've had very strong growth through Q2, the last four quarters really. What do you see going forward there?

Well in engineering, as you know, we are operating primarily in two sectors; the energy sector, both in energy generation and energy delivery, delivery being the transmission and distribution generation, meaning restarts, conversion upgrades and life cycle extension services in the sector. We continue to see expansion of our scope in the existing contracts for the current client; deeper penetration of our relationship into some of these clients, and also expanding and bundling our offering to include other services.

The aerospace, there are a number of opportunities in the aerospace sector as well. I think the energy is probably a more promising sector going forward than the aerospace, since it's more tied to the government spending. But we are optimistic going forward in both of those engineering sectors, the energy as well as the aerospace.

Do you think it will be sustainable at a nice double digit clip?

Looking over the next couple of quarters I think that we can make that assumption. I'd like to reserve my judgment going forward in '08 and '09.

Okay. Thanks everybody.

(OPERATOR INSTRUCTIONS)

I show there are no more questions at this time.

All right, very good. Thank you very much for joining us, and we'll reconvene again at the end of the third quarter of 2007. Thanks very much.

Ladies and gentlemen this now ends your conference call. Thank you and have a good day.