R C M Technologies Inc (RCMT) 2012 Q1 法說會逐字稿

Ladies and gentlemen, welcome to today's RCM Technologies, New Jersey, first quarter earnings conference call. Your host, Leon Kopyt, will now begin.

Thank you, Stacy, and thank you for joining us this morning. Kevin Miller is here with me to provide you with some of the financial reporting and segmentation data. I'll make a brief comment after that, and then we'll open it up for a Q&A period.

So Kevin [we'll go with our] program.

Excellent. Good morning, everyone.

As you know from the press release, we have consolidated sales for the first quarter of $38,206,000. That's broken out by our various segments, as follows -- Information Technology $13,754,000; Engineering $16,626,000; and our Specialty Healthcare Staffing group $7,826,000.

We had a blended gross margin for the quarter of 26.92%, broken out as follows -- Information Technology 28.83%; Engineering was 23.16%; and our Specialty Healthcare Staffing group was 31.54%.

So that's the sectorial data. I'll turn it back over to Leon. Thank you.

Thanks, Kevin.

Since our last conference call, actually not too long ago, there hasn't been any significant developments. As we indicated in our press release, we are pleased with the continuing improvement in our revenue growth and the key balance sheet metrics.

The recently executed engineering contract coupled with a gauge of business activities in both IT group and Specialty Healthcare suggest a reasonable growth prospect in the future quarters. We continue to have better business visibility as the year progresses and believe that the underlying trend is positive and improving.

Stacy, let's open up for the question-and-answer period.

(Operator Instructions). Our first question will come from Jason Schacht from Heartland Advisors. Please go ahead.

Hey, good morning, everybody. Congratulations on a good quarter. Just one question for you this morning, and that was how much of the sequential decline in gross margins can be explained by the ramp-up for the Canadian project that you're working on?

Well, I can't give you an exact amount, but that's the major factor. I mean, if you look at Engineering year over year, 23.16% in Q1 of '12, versus 27.53% of Q '11, the major reason for that is the ramp-up. Obviously, in any given quarter there is always some mix shift going on, particularly in Engineering, because we -- the fixed price contracts, which tend to be much higher margin if we're executing them well, which we do almost all the time -- those [margins] will sort of create some fluctuation in the quarter. So when you see fluctuations in our Engineering margins, that's typically what's driving it, at least when you're looking at quarter over quarter since there is some seasonality in the margins as well. But to answer your question more directly, that's the major factor, particularly, obviously, in the Engineering.

Okay. Thank you very much.

Thank you, Jason.

(Operator instructions). Our next question will come from [Sean Connelly] with [Tetrem Capital]. Please go ahead.

Hi. Good morning. Thanks for taking my questions. Can you describe the trends that you saw in the different segments during the quarter? Did business get noticeably weaker or stronger as you went through the quarter? And what are you seeing so far in Q2?

I think Q2, our expectation is that it's going to be fairly similar to Q1. We should see a little better margins just because we start to already in Q2 get a little bit of a decline in the payroll taxes. We really get whacked in Q1 when it comes to payroll taxes, both above the gross profit line and below the gross profit line. Just to give you an example, if I compared January to December and sort of normalized it, you're looking at $400,000 extra in payroll taxes. Now, obviously December is the extreme month for the lowest payroll taxes and January is the extreme for the highest.

But as far as the top line, we're expecting to see a similar top line in the second quarter as compared to the first quarter. Hopefully we'll see a little sequential growth, but we're not expecting anything extravagant going from Q1 to Q2. But we should see a pretty nice, decent improvement in the gross profit margins.

And then I would say our SG&A in Q2 versus Q1 should be somewhat similar, although we continue to invest in our -- continue to invest, particularly investing in sales dollars into our IT group to continue feeding the growth that we expect to see there.

Okay. And then you had mentioned that you expect to see some reasonable revenue growth going forward. I know you haven't been providing formal guidance, but is there some sort of range that you can give us in terms of expectations? Are you talking about seeing mid single digits revenue growth throughout the rest of the year?

Yes, it's really difficult for us to do that, in particular because we just don't -- we're expecting to win some pretty significant work in Canada, but we just don't know when that's going to happen. I mean, we think we're going to start seeing some of that work maybe towards the end of Q2 and more so in Q3, but we just can't predict how quickly utilities are going to let work. It's just we've played that game before and gotten burnt. We just don't know when it's going to come, so it's pretty difficult for us to say.

The one thing I could say is we feel like there's very little risk of any erosion in revenues on a going-forward basis, and we should continue to see, absent all other factors, that influence to gross margin. And there are a lot of them, obviously, but we should continue to see some improvement in the gross margin each quarter as we reach statutory payroll tax limits.

Just to supplement, Sean -- this is Leon Kopyt. Just to supplement what Kevin said, I think some stuttering in business flow in the next couple of months I think is possible. But I think what's encouraging is that for the first time, we're seeing that all three cylinders are firing synchronously in the Company, meaning all the three divisions, so I think that should provide some operating leverage going forward and improved performance metrics. But I don't know if it's prudent for us to speculate in giving some kind of a guidance.

Okay. And then my last question is regarding capital allocation. I think as of now, you've got about $2.44 per share in cash. I guess I was wondering what your thoughts are in terms of putting the cash to work. Are you -- might you potentially be getting more aggressive with your share buyback program?

Well, as you know, we are in the market on the share buyback program. Kevin can give you particulars. But I think going forward, we continue to exercise patience, prudence and discipline in maximizing our capital allocation. So we are cognizant of that and we know what the options are, and we will continue to deploy the capital wisely and prudently, as I indicated.

Kevin, do you have updated numbers for the --

Well, through Monday we've purchased 680,000 shares roughly -- 680- -- 646,000 for about $3.2 million. In addition to that, we would like to -- and obviously, we have to find the right candidate, but we're interested in making an acquisition or two, particularly in the Engineering group because they're -- we foresee that there are going to be a lot of contracts coming down the pike where if we augment and supplement our current workforce and our current capabilities, we can capture even greater share of those contracts that are potentially going to be available to us. So rather than outsourcing a piece of it to a partner that maybe has some capabilities that we're lacking, we're going to look to make an acquisition or two in those areas, and that would be another -- in our view, another very good use of capital.

Is there -- I mean, in terms of any acquisitions, I mean, you're not looking at any large transformative acquisitions? I mean, are you looking -- is it more small tuck-in kinds of things?

No. No, as of -- you never know what opportunities come down the pike, obviously, but, no, we're not looking at any large, transformative acquisitions. If something came down the pike that really made a lot of sense, we obviously would look at that, but our focus more is augmenting our capabilities and bringing in some good tuck-ins that can bring some skills to the table that we don't necessarily have.

I mean, there are clearly plans to expand the Engineering staff. Whether we do it organically or through acquisition, that depends on the expediency and the cost effectiveness, but I think those are the options that we have.

Okay. Great. Thanks for taking my questions.

Thank you.

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

Okay. Thank you very much for joining us, and we'll reconvene at the end of the second quarter. Bye.

Thank you, ladies and gentlemen. This concludes your call. You may disconnect.