Good morning, ladies and gentlemen, and welcome to the RCM Technologies First Quarter Earnings Call. [Operator Instructions] Mr. Rocco Campanelli will now begin.

Thank you, everyone, and thank you for joining our conference -- earnings conference call. I'm here with our Chief Financial Officer, Kevin Miller. And a little bit about our agenda today, Kevin will start with discussing -- providing a statement on forward-looking statements that will be included in our call. He will review the quarterly financial results. He will turn it back over to me, and I will discuss the -- an operational review of the first quarter, and then we'll open it up for questions. Thanks again for joining us. Kevin?

Okay. Good morning, everyone. Let me get the legalese out of the way first here. 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 materially change in the future. For more information on our forward-looking statements and the risks, uncertainties and other factors to which they are subject, please see the periodic reports on Forms 10-K, 10-Q and 8-K that we file with the SEC, as well as our press releases that we issue from time to time. Okay. Now I'll provide somewhat a brief overview on the selective sectorial and other pertinent data. As you know from our press release, our consolidated revenues were $48,569,000 and grew 17.8% over Q1 of 2013. It's worth noting that, that's the highest quarterly revenue, consolidated revenue for RCM Technologies in over 6 years, with all 3 of our business segments making significant contributions to that number. Engineering revenues of $24,724,000 grew 21.7%, and that is our highest quarterly revenue for our Engineering segment in the company history. IT revenues of $15,019,000 grew 7.3%. That is the highest quarterly revenue for our IT group since Q1 of 2011, and their sixth straight quarter with nice growth. More importantly, in the IT group, our GP dollars from Q1-to-Q1 grew by 15.4%. GP dollars were a little over $4.5 million, and those are quarterly numbers that we have not seen since 2010. So our IT group has, over the last 2 years, been able to grow the top line but, at the same time, grow the gross margin percentage, which is extremely challenging, especially when you consider the transformation that we've made over the last 2 years. Our Healthcare revenues of $8,826,000 grew by 27.4%, comparing Q1 to Q1, and that is their highest quarterly revenue in our company history. Talk a little bit about gross margin percentages. Our consolidated gross margin percentage was 25.2%. Our Engineering gross margin percentage was 21.2%. Our IT gross margin percentage, which was north of 30%, at 30.2%, and our highest gross margin of the 3 segments. And then our Healthcare gross margin percentage was 28.1%, also a very impressive gross margin percentage in the Healthcare group as well. A little bit about the outlook. We're obviously very pleased with the first quarter. It came in higher than we probably would have estimated in the December timeframe. We expect to see continued improvement over the next Q2, Q3, Q4, continued gradual sequential improvement. Particularly probably in Q3 and Q4, where we probably expect to see a little better consolidated gross margin, hopefully driven by the Engineering segment, which had lower gross margins in the first quarter than we'd like to see. But -- and also, I always like to note that we have a little seasonality in Q3 across the board, but especially in our Healthcare group because we have major -- some of our major clients, our school systems, shut down. So -- but -- so we would expect to see a little bit of a downturn in Q3, as compared to Q1, in terms of the top line. But we're cautiously optimistic that the cumulative results for Q2, Q3 and Q4 will exceed the cumulative results for Q2, Q3 and Q4, at least at the gross profit dollar line and operating income line, which are obviously the most -- the 2 most important numbers on our income statement. Quickly a little bit about cash flow. The first quarter, our operating cash flow, we used $2.8 million, so we had negative cash flow from operations of $2.8 million in the first quarter. And that was primarily due -- or really almost entirely due to the sales increase that we had from Q4 to Q1. So we went from $45.8 million, sequentially, in Q4 to $48.6 million in Q1. And we did see a little improvement in our DSOs. Our DSOs went from 111 days in -- at the end of Q4, to 106 days, so we were able to see some improvement there. We're hoping to see continued improvement so that we continue to bolster our cash flow from operations going forward in 2014. So that's all I have prepared for this morning. I'll turn it over to Rocco. Thank you, everybody, for joining the call.

Thank you, Kevin. As Kevin stated, our first quarter revenue and gross profit was the highest at RCM in the past 6 years. As Kevin also stated, our IT consulting and solutions division continues to see growth for the sixth consecutive quarter, mainly due to expanded results from new first-time clients and exceptional results from our Life Sciences, Human Resources and QAD divisions. As a matter of fact, the Life Science group has experienced its best revenue and gross profit growth in recent memory. In addition, I would like to point out that the IT group's gross margins were in excess of 30%, which is better than any other division in the company. Well done, IT. Our Healthcare division had its highest quarterly revenue for the second consecutive quarter. Our revenues generated from our school system contracts remained strong, and our new health information management group has posted impressive results. Engineering realized its best revenue for its fifth consecutive quarter. Our Canadian division continues to do well, focused on Engineering projects related to nuclear plant refurbishments, as well as operating plant betterment, with a strong backlog. Aerospace Engineering has experienced exciting growth, mainly due to the technical publication service offering. We established a key contractor facility for Pratt & Whitney in our Westerly, Rhode Island office, which is performing well above our expectations. We also expect to be awarded a strategic solution services agreement with a major aerospace equipment manufacturer. This company is in the process of drastically reducing its supplier base, and we should see a benefit from this contract in the third and fourth quarters and into the next several years. Our Power Systems Services group in the U.S. and Facilities Design group had underperformed in the first quarter. Although we started several major contracts in these 2 groups, we are seeing some weakness, mainly due to delayed U.S. contracts from our Canadian operation. These groups have diversified their service offerings to include advanced metering infrastructure design and implementation as part of our energy and demand-side management offering, as well as a focus in transmission and distribution engineering. We expect expanded results from these areas in the third and fourth quarter, as well as an increase in U.S. Engineering projects from Canada. We expect performance for the remainder of 2014 should continue to remain strong. That's what I have for our prepared statements, and I would like to open it up for questions.

[Operator Instructions] It looks like we do have a question from Ryan Downie of RCM Technologies (sic) (Sidoti & Company).

Looking at the gross margin. Obviously, Engineering was still a little bit below, is that related to the low-margin contract you guys had spoken of in the past couple quarters, that you expect to sort of come off the books this year?

Yes. That's the primary driver, Ryan. I mean we had a few other things in the first quarter. We have some managed task work that we're doing in the United States that were not realized in the kind of margins that we'd expect. But clearly, the biggest impact is coming from a large express contract in Canada. That's going to go through the end of this year, but we're hopeful that the majority of the work will be completed by the end of Q2, and that the impact in Q3 and Q4 will be a lot lower, and that we could get those margins up quite -- as much as 200 basis points in Q3 and Q4. Obviously, that assumes that, that project goes the way that we currently expect it to go. But that's our belief, as we're sitting here today, that we'll probably see similar margins in Q2 for Engineering, but hopefully, we'll see a pickup in Q3 and Q4.

Okay. If you look at the -- the Healthcare and IT segments continue to display some strong growth. Are those new accounts you guys are adding or you're getting some better traction with the existing ones?

It's primarily driven by new accounts, but certainly, traction with existing accounts as well. But on the Healthcare side, the biggest impact has been Hawaii. We have 3 major clients in Hawaii now, and over 1 year ago, we had 0, basically. So we might do anywhere from $5 million to $8 million in Hawaii this year. We're off to a really good start with the Hawaii school systems. In addition to the Hawaii school systems, towards the end of last year, we won a contract with the Hawaii Corrections, which is their jail systems, and then we won a contract with a hospital network. I believe there's, maybe, 3 or 4 hospitals in the hospital network that we won a contract with. The biggest driver is, so far, is the Hawaii school systems. But we believe there's potentially other contracts that we can win there, not necessarily in 2014, because they don't always come up for bid every year. But we're very excited about that. Another area that Rocco mentioned is we started the Health Information Management Systems group last year. And that has really, almost immediately, we've seen some benefit from that. On the IT side, we had several groups, as Rocco mentioned, that performed really well in the first quarter. As far as driving the overall growth, the biggest driver is our Life Sciences group. It's our biggest -- it's the biggest group within IT, and we've won some very nice projects with a couple of major life sciences companies. And one of the clients was fairly new last year, and that continues to go strongly. And we won another large engagement this year. Those are the 2 biggest drivers, but of course, we've made improvements across the board. I mean, the IT group, when you look at where that group was 2.5 years ago versus where it is today, it's been just a metamorphosis in terms of where that group has gone. And it's, from the company's standpoint and the board's standpoint, it's really exciting to see the progress that they've made.

One additional thing, Kevin, within the IT group, there's been major sales focus that is reaping results in opening new divisions at existing accounts, as well as new accounts across the board. And all of the divisions have participated and opened new accounts. And we're seeing very good results from that -- those efforts.

Yes. And we've had some outstanding results over the last couple of years in Puerto Rico as well. I mean, I'm probably leaving something out because there's been so many positive developments in the IT group, over the last 2 years, that have driven what has been consistent growth. And we haven't -- historically, we haven't had the consistent every-quarter growth in that group and it's really nice to see.

All right. And these new accounts, you're able to get the same sort of margins, you think, as your existing businesses?

Well, every account is different. Every account is approached differently. But overall, we've been able to improve gross margins, which is very challenging to grow your top line and, at the same time, improve the value of your service offerings. And they've been able to do that over the last 2 years, so it's really impressive.

[Operator Instructions] The next question is from Sean Connolly [ph] of Tiberium Capital [ph].

First question is on the IT gross margin. If you look over the last few years, I guess if you look over a quarterly basis, you'll see a little bit of fluctuation. But when you look at kind of the longer-term trend, it looks like gross margins have averaged kind of just under 29%. And then we saw the pretty strong 30.2% this quarter. I guess what drove that strong gross margin this quarter? And I guess how should we think about margins going forward? Is this just kind of, say, a normal fluctuation and we're just happen to be on the high side this quarter? Or do you see it kind of trending at this level?

We're always going to see fluctuation in margins from quarter-to-quarter. There's just so many factors that can influence that margin. And you might see 30-plus percent one quarter and then it might dip down to 28% in another quarter, and there's a lot of different factors that influence that. But the major factors are the higher-margin revenue, which is going to go up and down a little bit from quarter-to-quarter. We don't do -- we do very little executive search, but from time to time, we do a little bit of perm placement and that can boost the margins a bit. And then we also sell software out of our QAD group, and that is never going to be like the same amount of sales every quarter, and that causes some fluctuations. But as you pointed out, what I like to see is a trend of increasing margins. And we've seen that out of our IT group and it's not by accident. We have shed some lower -- when Tim Brandt came on board, we looked at a bunch of our clients and decided that some of them just weren't generating the right margins. And we didn't think that long term, those are the clients that we want. So while we were growing the business, we shed a few clients. One particular client that we were doing close to $2 million a year, but we just said, "No thanks, we don't want this work anymore." So there's been a concentrated effort on growing the value of our services. And that is really sort of part and parcel with growing gross profit dollars is just as important as growing the gross margin, but obviously, they go hand in hand. So there's been a concerted effort to really focus on growing gross profit dollars, and we grew gross profit dollars 15% quarter-over-quarter. And that's what the group is setting out to achieve, and so far, that's what they've been achieving.

Great. Next question on Engineering gross margin. And you've mentioned the large project that was breakeven that's kind of been weighing down on margin. Can you break how much revenue that project accounted for this quarter?

Yes. I don't have those numbers in front of me, and frankly, I'm not interested in disclosing too much detail about that particular project, but I can tell you we actually had negative gross profit dollars in the quarter. But I do want to emphasize that this fixed-price contract is part of a much larger contract with several different phases. This is Phase 1 of a large project. Phase 2 and Phase 3 are TNM [ph]. So we're making money on the project. We're making a positive gross margin, overall, on the project, it's just way lower than it should be. And we've learned some lessons on this project that our goal now is to make the client happy, finish the project and move on. But you're probably looking at 100 to 200 basis point decrease in margins from quarter-to-quarter that we've seen over the last -- in 2013 and into 2014. But the good news is it's going to end at some point and we'll get our margins back up.

And I -- if I recall correctly, I think you said there still should be some negative impact from the fixed-price contract in Q2, but then it should be ending in Q3 and Q4. Is that still correct?

Well it should be tapering down in Q3 and Q4. It's not going to end, and I have to be very straightforward in that, until we finish the project, we're not finished with the project. And until we finish it, I can't tell you for sure when our margins are going to come up. But as we're sitting here today, we believe that it's not going to have a big impact on Q3 and Q4.

Okay. And I guess what was the logic between doing a fixed-price portion of the contract? And then I think you said the later portions of that contract are time and material. So I guess what -- is it difficult to do things that are fixed-price? Or I guess what...

We do fixed-price work from time to time. And historically, in our Engineering group, particularly in our Canadian Engineering group, we have a lot of very positive experience. We get some of the best margins that we've seen in the company. We can get on fixed-price contracts, we can get 50% gross margins on them. So, historically, we have pretty good experience. This one particular project was the first major project at a big client in Canada. And the client wanted us to do this project at this price, and at that time, we thought that we would make a little -- we thought we would make money on it. Additionally, we had 30 engineers coming off of another big project and we needed to put them to work. And this allowed us to keep 30 engineers that we're going to need for the next 10 years. So at the time, it frankly was a pretty easy decision. And even today, I don't regret doing it because it was just one of those things that you needed to do to make the -- our biggest client happy. We wish it would have turned out a little bit better, obviously, but it is what it is. We're making the client happy, which is the most important, a client that's going to be -- that we believe is going to be a client for the next -- a major client for the next 10 to 20 years. And this -- when we look back on this, this will be a blip on the radar. For now, it's depressing our gross margins a couple hundred basis points from where they should be.

Okay. My last question is just on SG&A. It was -- if you look at it sequentially, we saw about a 6% revenue growth, and SG&A came in around 8.5% growth. Is this -- I guess how should we be thinking about SG&A going forward in terms of revenue growth? Is there any way you can maybe break out -- or give a rough estimate of what percentage of your costs are fixed versus variable?

Yes. I mean, we obviously look at that, but it's not something -- it fluctuates so much. The only thing that I would tell you is that, for the last couple of quarters, particularly in Engineering, we've been gearing up for growth. We had to add a lot of space in our Technical Publications group, and we had to add a lot of space in Canada. And frankly, we're not done because every time we add space, it seems like a couple more -- a couple of months later, we need more. We're completely out of space in our Canadian Engineering. We had a group we had to get space across the street, and now we're probably going to get -- need even more. In Technical Publications, we've like slowly taken over an entire building. And now there's maybe like 10% of the building that we're not occupying, and we have aims on that. And now we're going to get -- need to get more space. So -- but to answer your question, I don't expect the SG&A growth to continue to outpace the revenue growth, which is -- which I think is what you really want to know, right?

Right.

And we have a lot of technology that we need to invest in as well, which doesn't necessarily show up in your SG&A right way. But we have a lot of computers we're buying. I had to replace like 30 old computers up in Canada this week just because they just can't keep up -- these old computers can't keep with the work. We're growing so fast, we're just -- we needed to make some investment. But looking out, those investments will pay off.

[Operator Instructions] There are no more questions in queue, sir.

Well thank you very much for participating in our call, and we look forward to hearing from you after the second quarter. Thank you very much.

Have a nice day everyone.

Ladies and gentlemen, this does conclude the conference. You may all disconnect.