R C M Technologies Inc (RCMT) 2010 Q1 法說會逐字稿

Good morning ladies and gentlemen. And thank you for joining the first quarter earnings conference call.

Your host for today is Mr. Leon Kopyt. Mr. Kopyt, you may begin.

Thank you very much. Good morning and I'm please to welcome all of you to our first quarter earnings conference call. I am joined by my colleagues, Kevin Miller, and Art Dell, who will present a respective presentations. We'll follow our usual format. After the Safe Harbor statement Kevin will give you selective financial information. And we'll move on to questions and answer period. Thanks very much. Art?

Good morning. The following is our Safe Harbor statement. Our presentation in this call will continue 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 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 anticipated operating performance and financial conditions.

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 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 I also will 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 filed with the SEC. We'll be happy to send documents to you at your he request. Otherwise we encourage to you review the documents as they appear on the RCM Technologies website under Investor Relations. Thank you. I'll turn it over to Kevin to provide the selected financial data.

Good morning everyone. For the quarter, we had total revenues of $49.056 million broken out as follows. $19.802 million for information technology. $18.702 million for engineer, $10.552 million for commercial services. And the gross margin percentages are as follows. 25.87% on a blended basis, 26.92% for the IT group, and 24.8% for engineering, 25.81% for commercial services. So that's the (inaudible) data and I'll turn it over to Leon.

Thank you, Kevin. Operator, can we open up for questions and answers period please?

(Operator instructions). Our first question comes from Jason Schapira with Heartland Advisors. Jason, go ahead.

Good morning, guys. Congratulations on a great quarter. The oracle business you discontinued if the quarter. What did that represent in terms of revenues?

Well, the revenues for the quarter were pretty small. Let me just get you an exact number, though. The revenues for the first quarter of 2010 were $471,000. The revenues for the comparative quarter first quarter of 2009 were $1.391 million.

Okay. And maybe could you also give a little bit of color on your staffing business, and what you saw in the quarter there, as far as business trends?

Jason, it is Leon Kopyt. How are you?

I'm doing all right, thanks.

The staffing business continues to lag behind and grow with the both solution and engineering business. As you know, we have been in the transformation mode, to a project and solution-based bundling solutions over the last several years. I don't have in front of me specifically what the staffing revenues are. Kevin, do you?

No, I don't have the specific numbers in front of me. But we have seen, at least from the feedback we are getting from the field is that, particularly on the IT side, we are really not doing much staffing on the engineering side too much. But on the IT side, still a meaningful component of revenues. Although we are slowly transitioning away from that. And sort of going after our staffing opportunities on a selective base base. Focusing on the companies where we can achieve decent margins, and not some of the margins in the mid-teens that you see in a lot of staffing engagements today. But what we have, the feedback that I've gotten from the field, is that they have seen a strengthening this quarter, in terms more requisitions, and a little bit of strength in that market. So we expect our staffing reference news. Although, we can expect to see the mix shift continue to come down, throughout the year. We are somewhat hopeful that we'll see some growth on our staffing revenues in a quarter, maybe a little bit higher in Q2 versus Q1, and Q3 versus Q2. As some of the, I don't know that I want to say they are trends, but some of the indications that that market could be strengthening a little bit. We expect to see that improve a little bit.

Okay. Thanks, guys.

Our next question comes from Sheldon Grotzky with Grotzky and Associates. Sheldon, please go ahead.

Good morning, everyone. Nice looking quarter. Should we come to a conclusion that this is a normal quarter? I don't know how many oddball items sneak in every quarter at RCM. But is this something that should be repeated? A new base for operations to grow from? Can you give any color as to what your expectations are about the outcome?

Sure. I think this was a particularly strong quarter for us on a few different fronts. Particularly in engineering, we had a couple of nice, fixed price contracts that you know, that peeked a bit if the first quarter. Not only in terms of the revenues, but in terms of the gross profit because typically, we are getting better gross margins on the fixed price contracts. So we may not see in engineering as good a quarter in the second quarter. However, the pipeline in engineering is very strong. And historically, that business can, because we tend to do bigger projects, in that business.

So you may get a little bit of lumpiness, for lack of a more artful term from quarter to quarter. But the business is very strong. It is certainly our expectation that in engineering we will out perform significantly what we did in 2009. But it is also possible we may see a little sort of ups and downs from quarter to quarter not only in the revenues, but also in the gross margin. But we should continue to have a strong quarter. Q2, Q3 and Q4 should all be strong in engineering.

Depending on how these larger projects we are bidding on shake out. Some of them may be 2010 projects, some of them may be 2011 projects. So that pipeline is real strong.

In terms of the IT, we think the level that we are at right now is probably indicative of what we'll probably see for the next couple of quarters. We are cautiously optimistic that we can see some growth there, but we do have a couple of big life scientists clients that are in a little bit of flux, right? So it wouldn't shock me to see revenues a little bit lower in the IT segment than they are in the first quarter. But I'm also optimistic that we'll continue to see some margin expansion as well.

To shorten the long answer to your question, we think that this quarter is indicative of quarters that we should see going forward, with some potential swings up and down. I don't know that we are going to do the level of gross profit dollars in the second quarter that we did in the first quarter. But I don't believe it will be substantially lower. And I also think there is some opportunities for us to continue to tweak our SG&A expenses a little bit as well. So if we lose a little bit of dollars on the quarterly gross profit, which definitely could happen and probably will happen from second to first quarter, I think we can make up a good portion of that or some of that at the SG&A line. So I think to answer your question, the second quarter probably, would probably be in terms of the operating income, similar to the level that we did in the first quarter, maybe down a little bit. We'll see. We are encouraged by all activity that we have going on.

Sheldon, it is Leon Kopyt. Just to add a little bit to what Kevin said. The revenue visibility for the remainder of the year is relatively good with some obscurity in a few sectors, financial, manufacturing, distribution and public . But other factors I think will look fairly predictable. We continue to seek margin rich revenues, which may impact the top line growth, but should contribute to the margin expansion, both the gross margins and operating income.

What kind of engineering projects do you take on?

There are projections that are primarily in the energy field. Restoring and refurbishment of both nuclear and fossil fuel power generating stations, including life cycle extension, power upgrades, fuel conversions. Those are some of the projects. And then we have the defense and engineering group which does fixed and rotary aircraft designs, structural designs.

Thank you.

Our next question comes from Kevin Chia Batoni with Boning Scattergood. Kevin. Please go ahead.

Morning, guys.

Good morning.

SG&A was down premature pretty materially in the quarter. Give us some color on what drove that and if that level is going to be sustainable for the rest of year. I know, Kevin said you probably would be able to tweak that a little bit. If you could talk about that?

Yes, sure. I mean, basically, it's a continued effort to more efficiently run our Company. So those gains in SG&A are coming from a variety of different areas. There's been a concerted effort the last six to nine months to run our business more efficiently.

As far as the SG&A going forward if we assume sort of the same levels and sales and gross profit more importantly. Because the gross profit at the end of the day is what drives commissions and a lot of the sales costs. If we assume a similar level, I think that we'll continue to see similar levels of SG&A with the ability to maybe tweak that down a little bit. I'm not expecting wholesale decreases to SG&A. If we can get it down $100,000 to $200,000 a quarter, maybe $300,000. Obviously we are not going to do that every quarter. But my goal is to continue to get that down and keep chipping away at it. Obviously, as we are cutting certain costs out we are reinvesting some of those, particularly on the sales side. I think there is some room to continue to tweak that and improve it as we go forward.

That is helpful. Two quick kind of housekeeping questions. If you could give an idea of what the tax rate you have looking at for the rest of the year would be as well as the billable dates for each quart for the year.

You can always be pretty safe if you assume somewhere in the 38% to 40% effective tax rate. Our tax rate was pretty low this quarter because we had a real good quarter in Canada. And there is a tax abatement there right now. We are paying lower tax in Canada than we historically have. But I don't think that we are going to see the effective tax rate in Q2, Q3 and Q4 that we saw in Q1. So, I think we'll see that just under 35%, I believe off the top of my led. I think we'll start to see that creep up a little bit. And as far as the billable days are concerned, we should have, I believe we'll have 64 days in the second quarter, 63 days in the third quart, and 62 days in the fourth quarter.

Okay. What was this quarter?

This quarter was actually 64 days. We had an extra billing day from what we normally have, because we were able to shift. Because we had the extra week in the fourth quarter of last year. New Year's was shifted into the fourth quarter. If you remember from our year end call, which wasn't very long ago, we had a 14-week quarter. Which really didn't help it helped a little bit at the top line, because we wound up with some extra billing days. But that week between New Year's and Christmas is kind of a brutal week, so it really didn't help us in the fourth quarter on the bottom line. But what it did do, it definitely helped us if the first quarter, because we got that week, we got the days around the New Year's holidays shifted into the fourth quarter, which didn't hurt the fourth quarter that much but getting it out of the first quarter definitely helped.

Typically our first quarter can be a pretty tough quarter, especially if we get that whole week between Christmas and New Year's in the first quarter, which does happen some years. And we almost always have New Year's day. And there is a lot of revenue hangover surrounding New Year's day. A lot of people take off before. Some people take off after. That is just a real slow week for us. But it was nice to get that in the fourth quarter.

All right. Perfect. That is all I had. Thanks, guys.

Our next question comes from Steve Bodo so with Shareholders. Steve, go ahead.

Good morning, congratulations on a great quarter.

Thank you, Steve.

Leon, can you comment at all on the impact on your growth that might have come from acquisitions over the past year?

We actually made just a small acquisition last year, and that came in June. So it had some contributions, I think in the third quarter and possibly in the fourth quarter. But I don't think from a margin point of view there was any significant contribution from the acquisition. I think most of the margin contribution was a good performance on the contracts that we had, both in Canada and US.

Okay. Good. One further question on acquisitions. Are you anticipating any earn out payments this year?

I don't expect that we'll have any earn out payments in fiscal year 2010.

Okay.

I mean, you'll see a footnote, when we file the Q, later on today that discloses what the maximum payments are. And there is also some language in there that management does not expect to make any payments in 2010, despite the fact that the maximum payments are like $2 million and change.

As you know, that deferred payments are tied to a fairly high level of performance that the previous management needs to deliver. So that's our expectations right now, that perhaps those levels are not going to be achieved.

Okay, thanks. One final question. Any status on the share buyback program?

Kevin?

Yes, sure. Well, we have not purchased any shares yet. As you probably know, once we release the fourth quarter of last year, our final year end audited results, we basically had like two days, or really one day, to do some trading. As far as you the blackout being lifted. And that doesn't get lifted until, as I understand it, from our attorneys, 48 hours from today. So once we get through the quiet period from releasing the first quarter, we'll be able to buy some shares.

Okay. Thanks a lot. Great quarter.

Thanks, Steve.

(Operator Instructions) We have no further questions at this time.

Okay. Thank you very much. And we'll reconnect at the end of the second quarter. Thank you.