R C M Technologies Inc (RCMT) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for joining the 2nd quarter earnings conference call. Your host for today is Mr. Leon Kropyt. You may now begin.

Thank you, operator. Good morning and welcome to our quarterly call. I am joined by two of my colleagues, Kevin Miller and Art Dell, who will contribute to the presentation this morning. We will start with Art and continue with Kevin and then we'll open up for questions. Thank you.

Good morning, the following is the Safe Harbor statement. 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 relates 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 products offerings, a concentration on higher margin service areas, our pursuit of strategic alliances, partnerships, clients and acquisitions, the increased propensity of existing and potential clients to out sort 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 the risks and uncertainties materialize or if our underlying assumptions are incorrect, actual results may vary significantly from expected results. The following factor will specifically effect our ability to achieve expected results.

Unemployment and general economic conditions associated with the provisions 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 customers and future customers; our ability to achieve and managed growth and selecting suitable candidates and analyzing the businesses accurately and integrating acquired businesses into our company, and other risks of our acquisition strategy. Many other factors also will effect our ability to achieve expected results. The other factors we consider most pertinent are referred in periodic report on forms 10K, 10Q and 8K that we file with the SEC. We will be happy to send copies of the 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, I will now turn it over to Kevin Miller to provide selected financial data.

Good morning, everyone. For the quarter, we had total revenues of $47.223 million, broken out as follows. Information Technology, $21.816 million, engineering $15.329 million, commercial services, $10.078 million. For the quarter we had blended grooms of 24.52% broken out as follows. Information Technology 24.5%, engineering 22.16%, and commercial services, 28.16%. So, at this time I will turn it over to Leon for Q&A. Yes, thank you. operator, can we open up the conference call can be for Q&A period.

(Operator Instructions) Our first question comes from Bill DiTullio with Boenning and Scattergood.

Good morning and thanks for taking my question. First question, just wondering if you are continuing to see any project delays or cancellations from your clients?

Yes, I think the best way to characterize the current situation is that it's less bad than it was. But we continue to see the deferrals, scale downs and reconsiderations and spending on part of the clients, So the underlying trends are still challenging and negative. In our opinion this recovery should be marginally different from the paracycles because of the severe shocks and after shocks, and prevailing feeling of skeptism and a lack of confidence in financial markets. But having said that, we are not waiting the media to declare the recession is over, reacting offensively, reinvesting in people with geography infrastructure looking for acquisitions. We are focusing on the managing our exposure to poorly performing sectors and seeking opportunities in other sectors. So there is no road maps or instruction manuals help to deal with this information. We follow our instinct and experience in executing to the best of ability.

And is it safe to say, you seeing most of that push back still on the IT services? Yes, I think it's probably more in the IT services than it is in engineering and healthcare.

And certainly in our traditional staffing unit which as you know, is in southern California and focuses primarily on retailers and manufacturers. So, that's a unit that has gotten a double whammy hit in terms of the sectors that we serve and in terms of the geographic location. But that is a unit that is historically performing very well. When the market comes back, we are confident that the group will return to formal levels.

And just turning to the engineering segment, where are you seeing most the growth coming from specifically? In engineering?

Yes. It is essentially providing alternative energy sources, power plants, to supplement the traditional fossil fuel and nuclear facilities so that utilities can respond better to the demand to peak conditions. And also, rebuilding and improving the current infrastructure of the utilities.

Okay.

Our next question comes from Anthony Terrazo with Key Equity.

Good morning.

Good morning.

When we had the last conference call, you were hoping or expecting that this quarter would be how greater revenues in the previous quarters, It's obviously that we were a little bit below. What happened that your expectations weren't met. Where did the weakness show up that you didn't expect this quarter?

I know we had one less billing day. Right? I think primarily, where we see the continued weakness is in the Information Technology area particularly on the project side. We are just not,seeing the full scale projects that we have seen in the past. Certainly, we have been winning some projects and not at the same level in the past and not at the same level that we expected. Fortunately, we were able to make some incremental improvements in terms of reducing our bench time, and managing the utilization on the project that is we are running. So we did see a nice pick up in the gross margins and we are hopeful that we will see continued improvement there into the third and fourth quarters. Particularly, the area of biggest weakness frankly is in Information Technology. Healthcare group is kind of flattened out a little bit, in terms of the revenues there. Which is a little bit of a surprise, but not a big surprise. We've seen such explosive growth in that group over the last couple of years. And combined with what is going on with the overall economy, we have seen a little bit of a flatness to a downturn in the revenues in healthcare. So, it's primarily the decreases is due to our IT group which did $22.9 million in the first quarter as opposed to $21.8 in the second quarter. That's primarily where we are seeing the softness. So, our answer to that is to continue to work hard, to win our fare share of our projects that out there. And continue to manage the bench better and manage utilization better. And frankly get more efficiencies out of our selling and recruiting infrastructure.

Have you seen any improvement as we've entered the 3rd quarter.

A lot of companies have seen things stabilizing and getting a little bit better.

Have you seen any evidence of that.

As I indicated. The situation is less bad. But nevertheless the underlying trends are still negative. The RSP's are not coming at a level that we would expect. The demand is still weak. The technology adaptation is essentially nonexistent. And most of of the spending is in maintaining of the current infrastructure and security systems as opposed to adaptation and new technologies.

Now, you talked about looking for acquisition candidate. Is it a fertile market for that. I would think in this recession and environment, they'd be some real good opportunities that you may be able to find. Can you comment on that?

Yes, you are absolutely right. There are a number of opportunities, valuations that are attractive. We continue to exercise out (inaudible) in the acquisitions and we do have a number of candidates that we are evaluating.

Okay. Thank you very much. Good luck.

Thank you.

Our next question comes from Bill DiTullio from Boenning and Scattergood.

Yes I had more questions. I guess I got cut off there. Kevin, there was a tax benefit in the quarter and can you give us more color as to with a caused that?

Basically we were a little over accrued and from a percentage basis, it becomes more pronounced because the tax earnings are pretty low, Right? So we were a little over accrued and which wound up giving us a tax benefit. So, it is really just a timing thing with the over accrual in the first quarter.

Okay. And then, I saw the gross margins picked up nicely from the previous quarter. And I know you just commented a little bit on that. Should we look for those kind of margins for the second half of the year?

Yes, we are optimistic. Assuming we continue to manage the bench diligently, that we should see gross margins similar if not a little bit better than what we have seen in the second quarter. And Bill, as you know, our third quarter has a little bit of seasonality in it. So, we expect sales overall to be down in the third quarter as opposed to Q2. So, we are hopeful that we will see a little bit of a pick up in the gross margin, so that the decrease in sales doesn't hurt the bottom line.

And fair to say that the IT services will probably be weak for the remainder of the year?

I think it will continue to be weak. There is nothing as we sit here today where we can say, that we are going to see a pick up in the IT sales for the balance of the year. Hopefully, we could win a couple of big projects and that could change. We really can't sit here and predict any meaningful pick up in the IT sales for the balance of the year.

What about and then turning to engineering, should we consider that might be a possibility of a cut there?

Yes. I think engineering is going to be down a little bit. And once again, we also made an acquisition which had no impact on the second quarter. It is effective in the third quarter. We should probably see around million dollars in revenues from that acquisition. But I would expect in the third quarter that engineering would be flat to maybe down a little bit. Although, I am expecting, I am somewhat hopeful that we will see a slight pick up in margins in the third quarter in engineering also. And historically, we do because we start seeing a lot of our, particularly in our aeronautics division, we start seeing a lot of our highly paid consultants hitting their statutory tax limitations, right? So we are not paying out the (inaudible) of social security taxes. So, we should see a little bit of a pick up there as well. And then commercial services historically, we have seen, or at least last year, from Q2 to Q3, our healthcare group was down about $2 million in revenues. I don't think that is going to be that large this year.

Just because they have done a number of things to diversify. But we certainly going to see a downturn Q2 into Q3 of I would say at least a million dollars. Okay, great. Those are all my questions. Thank you.

(Operator Instructions) There are no further questions at this time.

All right. Thank you very much. And we will reconvene at the ends the third quarter. Bye-bye.