R C M Technologies Inc (RCMT) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for joining today's earnings for the second quarter conference call. Your host for today is Mr. Leon Kopyt. Mr. Kopyt, you may begin.

Thank you. Thank you so much for joining us this morning. Kevin Miller is here with me, and isready to give you some segmentation details. I will then return for brief comments before we open for theQ&A session. Kevin.

Okay. Good morning. 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, and these matters may change in the future. For more information on our forward-looking statements and the risks, uncertainties and other factors which they are subject, see the periodic reports on Forms 10-K, 10-Q, and 8-K, that we filed with the SEC, as well as our press releases that we issue from time to time. Thank you. I will now provide the sectorial data.

The Q2 consolidated revenues were $36,514,000 comprised of the following, Information Technology $13,442,000, Engineering $15,838,000, our Specialty Healthcare segment $7,234,000. We had a blended gross margin of 28.65% comprised of the following,Information Technology 28.78%, Engineering 25.89%, and Specialty Healthcare 34.5%. So that is the sectorial data. Thank you and I will turn it back over to Leon.

Thanks, Kevin. As we indicated in our press release, the IT group results were the primary contributor to the revenue slippage in the second quarter. Although currently there is a modest improvement in the pipeline volume, the speed and the ratio of deal closing are still unacceptable.

We believe that the remediation plan is effective, but as of the end of the second quarter has not produced the desired results. So there is clearly a heightened sense of urgency and focus and priority to accelerate the reversal of the IT revenue decline, and I think based on our current forecasts, we believe that any further slippage in the IT revenue is unlikely, but clearly the potential for some collateral effect on the IT business as a consequence of certain sector slowdown is a possibility.

On a positive note is why the IT revenue decreased in the second quarter as compared to the first quarter, the IT operating income contribution remained virtually the same, and the gross margin expanded nicely by some 95 basis points in the second quarter as compared to the first quarter. So clearly the adjustments that we made had a favorable or counter balance effect to the lower IT revenues. With respect to the Engineering and Healthcare groups, we continue to be optimistic in terms of the business sustainability and continuing performance for both of those groups.

Looking a little bit ahead, we see some potential for transitory or seasonal soft patches, but I think the fundamentals that occur in the business environment remain favorable, and I believe we are well-positioned to participate in the upcoming opportunities, especially in the Engineering sector.

One last item and that is the subject of the capital allocation. I wanted to convey to you that the Board periodically reviews and considers available options to maximize the capital allocation, and I think in view of the recent market activities we anticipate another review shortly of this issue, and communicate any decisions that the Board perhaps can reach.

Thanks so much, and Operator, could you open up the lines for question-and-answer period, please.

Yes, sir. (Operator Instructions). One moment while questions come into queue. Our first question comes from Steve [Rudd, USIP].

Hi. Just to flesh out a little bit more, capital allocation you are talking that you are going to consider a buy back?

Well, as you know, we are in a buy back mode now, so we have, it is a program we started approximately--, Kevin, about a year ago?

Yes. A little over a year ago.

Over a year ago so we are in that mode now, but there are other options obviously that we need to consider as well.

Just layout what those are?

What those options are?

Yes.

Clearly some form of return of capital to the shareholders whether it is a special dividend or some recurring dividend, continue the stock repurchase plan with some reconsideration of the buy back levels. Those are some of the options.

And just so you know that year-to-date as of through today, we have purchased approximately 267,000 shares at an average price of $4.62, so clearly one of these options that Leon discussed is to try and accelerate the volume of purchases and there are--.

How many-- sorry. How many did we buy in the last quarter?

In the last quarter, let's see,we purchased approximately 60,000. Actually closer to 70,000 shares. As of Q1 we purchased 195,000 shares at an average price of $4.41. As of, and I don't have the average price in front of me for this quarter, but we have bought over 70,000 shares, and at 267 it is $4.62. So I am not exactly sure what the average price is, but obviously it is above the $4.41. So you are probably looking at something around a little over five bucks.

Yes. I see that. So we have got now cash on hand 23, I guess it is probably a bit in excess of where we were at the end of the quarter?

Well, it is actually down from where we were at the end of the first quarter, but I expect to have pretty strong cash flow in Q3. Certainly based on collections so far this quarter. As of the end of July we had approximately $27 million in cash.

Okay. So how much was left on our existing allocation?

We have about $6.3 million, $6.2 million left so we have got plenty of bandwidth there.

And are you, I don't recall, but you are blocked out during a certain window, is that right? Or we're not, how we filed it?

There are a lot of different rules when it comes to the share repurchases. The biggest constricting factor is that you can't buy more than, you can trade every day, but you can't buy more than 25%.

Right.

Of whatever your average trading volume is, but you are allowed to do one block share per week, provided that you do not buy any shares on the day that you buy the block. So that block could be quite large. We have not had the opportunity to buy a large block, so we have pretty much traded within the 25% of our average trading volume, which our trading volume since we have done this program has been anywhere from, I don't know, 15,000 to 16,000 shares a day to maybe 30,000. So it is like a rolling 30-day average.

And then you can trade during the blackout periods, but you have to give instructions to your broker. We are using R.W. Baird is handling this program for us, so when we get to a blackout period I have to give them very precise instructions, and then you can't change those instructions until you are out of the blackout period. And our blackout, so that is how it works. Hopefully I answered your question.

I think we are out now. Do we go out right when we report the quarter? The three days?

Well, our--

I can't remember.

Yes. You have to wait three days before you can do anything. That is not like a hard fast rule, but it is kind of a generally accepted rule, and my attorney would not be real happy if we traded within the next three days.

And that includes blocks as well?

What is that?

Yes.

It does include blocks as well?

Yes. No. We can't do anything for three days.

Right. And Leon just lastly, out of these options, I mean $27 million in cash so we have got $2 a share in cash. This Company it is painful because, we have all this cash, the share price doesn't reflect the cash, we have got the burden of these buyout penalties in effect, so we can't get somebody in to buy us, and we sit and we linger at $4.60. So out of these, Leon, the return of capital or a big one-time dividend, particularly while we still can get a dividend, you have that dividends receive deduction in effect the 85%. I mean what are you leaning towards?

I cannot comment on it right now. I will only tell you that whatever we do has to be meaningful, it has to be sustainable, and it has got to adequately reward the long-term shareholders. Clearly the options are limited, as I indicated to you, and we have to balance those options obviously with the need for the Company to retain sufficient working capital for any strategic expansions as well. So those are the considerations.

I mean you could put up in terms of limited, you could certainly yield half your cash, as long as you are going to continue generating it. Does that seem like that would unduly restrict you?

I don't know if I want to speculate on that right now.

Okay. Okay. Thanks very much.

Are there any other questions?

(Operator Instructions). There are no further questions in the queue, Mr. Kopyt.

There are no other questions? And you have asked everybody again?

(Operator Instructions). There are no further questions. Sir, there are no further questions.

Okay. Well, before we conclude our call I always at the end of the second quarter like to remind our shareholders who I think most realize that we have some pretty significant seasonality in the third quarter, especially as it pertains to our Healthcare group, our largest client in the healthcare group is the New York City Board of Education, and they virtually, they pretty much shutdown for July and August, so we typically lose somewhere in the neighborhood of $2 million to $2.5 million of revenues in that group from Q2 to Q3, and I always like to remind people of that in case they are not aware of it or aren't expecting it. So as we look forward I just want to make sure everybody keeps that in mind when putting your models together for Q3 and Q4. That is it.

Alright. Thank you very much, and we will reconvene at the end of the third quarter.