Rocco Campanelli - President and CEO Kevin Miller - Chief Financial Officer

Laura Drynan - Bourgeon Capital

Ladies and gentlemen, welcome to the RCM Technologies Third Quarter Earnings Conference Call. Your host for today Rocco Campanelli will now begin.

Good afternoon everyone. This is Rocco Campanelli and welcome to third quarter earnings call. I am joined today by Kevin Miller, our Chief Financial Officer. And the format for today’s call is, Kevin will begin with a financial summary of the third quarter followed by my prepared statement of review of the operating results for the third quarter. And then we’ll open it up for questions. So Kevin?

Good afternoon, everyone. 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 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. Thank you. I will now provide selected sectorial and other pertinent data. Consolidated revenues of $46,382,000 grew about 12% over Q3 of last year. That is the highest Q3 revenue in seven years for RCM. As a reminder, our Q3 has high seasonality due to school closings in our specialty healthcare group and summer vacations across all of these segments. Engineering revenues of $24,835,000 grew about 13% over Q3 last year. And that engineering achieved its highest Q3 revenue in company history. Engineering gross profit of $6,596,000 was the highest for any quarter in company history for prefer engineering segment. Our IT revenues of $14,405,000 grew about 10% over Q3 of last year. This is the IT group’s eight straight sequential quarter with prior year growth, current quarter to prior year quarter. The IT group also achieved its highest gross margin percentage of 31% in company history. And the IT group continues to leverage a relatively flat SG&A structure with growing gross profit dollars and naturally growing contribution margin dollars. Healthcare revenues of $7,142,000 grew about 16% over Q3 of last year and healthcare also achieved its highest Q3 revenue in company history. A little bit about the outlook going forward, just want to remind people that fiscal 2014 is a 53-week year. So, we actually have an extra week in Q4 that will moderately boost the top-line. However, we wind up with both Christmas of 2014 and New Year’s Day of 2015 in our fiscal 2014. So, not only do we have an additional major holiday, we wind up getting 100% of fairly expensive vacation time as we can imagine a lot of people take off between Christmas and New Year’s and if they’re not working, they’re not billing. So, while we will get a little bit of a boost in revenues with the extra week, the extra costs and the extra vacation time and the extra payroll for our non-billable staff, generally offset any benefit from revenues, so there is really not typically any net positive income to our -- excuse me net positive impact to our operating income when we wind up with the extra week in the fourth quarter and it happens about every five years or so. We expect to see the run rate in our Canadian Engineering Group slow a bit in Q4 ‘14 and into Q1 2015, it did slow down a little bit in Q3 as well, but we were able to achieve a little better margin in the third quarter to sort of offset that a bit. We’re hopeful that we will continue to see nice year-over-year revenue and gross profit dollar growth in Q4 of ‘14 as compared to Q4 of 2013 but we will -- we do expect to see a little bit of a slowdown in the normalized sort of top-line revenues. We’re also expecting gross margin percentage in the fourth quarter of 2014 to look more like Q2 as opposed to the high gross margins that we experienced in Q3. Additionally, we’re real optimistic about fiscal 2015 as compared to 2014, despite the fact that we expect to see a little bit of a slowdown in our run rate into Q1. In Canada, we remain optimistic about when we get to the end of 2015 and compared to 2015, we’re expecting to see solid growth across all our major component to the income statement revenues, gross profit dollars and operating income. And lastly, as we mentioned in our press release, the Board’s plans to issue a dividend at least $1 per share, sometimes towards the end of Calendar 2014. So, that’s all I have for my prepared comments. Thank you everyone for joining the call and I’ll turn it over to Rocco.

Thank you, Kevin. Our operating divisions continued to perform well in the third quarter. We grew operating income 56.7% over the third quarter of 2013. And as Kevin said, our gross profit was the highest in over six years with all three operating divisions making significant contributions. Our IT division gross margin of 31%, as Kevin also stated, was the highest in the history of RCM. IT continues its relentless pursuit of new clients, while realizing excellent results. What is particularly satisfying in the IT group is that, while a significant life sciences contract was coming to an end in the third quarter, they were still able to grow revenues by 10% and gross profit by 26%. So, it was very well done for IT. Healthcare grew revenues 16% over the third quarter of 2013. Now that schools are back in session, we anticipate a strong fourth quarter. Our international program will also see a positive increase in revenue in the fourth quarter due to successful recruitment efforts. The new travel nurse program continues its steady growth and has seen a 42% increase in revenue over the second quarter of 2014. Our Engineering division grew gross margin by nearly 230 basis points and realized gross profit dollars growth of 21% over third quarter 2013. Aerospace engineering continues to post excellent results with revenue growing 14% and gross profit growing 28% over the third quarter 2013. Our Canadian Engineering division is in the midst of resolving some issues in one of our major purchased orders. RCM has a subcontract with a prime contractor whose purchase order was terminated. RCM is working closely with a prime contractor, as well as the utility to continue to provide our engineering and procurement services on this effort. We’ve been given written direction to proceed and expect purchase order directly from the utility on this project. However, this cancellation and issues between the utility and the prime contractor will impact the run rate for all three U.S. and Canadian power groups through the first quarter of 2015. We are confident that we will successfully resolve these issues and return to sustained and predictable growth in our power systems group. We expect the fourth quarter to compare favorably to the fourth quarter of 2013 and we’re optimistic we’ll continue to deliver strong growth for fiscal 2015. Thank you very much. And I’d like to open the call to questions.

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

Okay. Well, thank you very much for your participation in the call. And we look forward to discussing the fourth quarter in [summer] months.

We have received one question. It came in last second.

Okay. No problem.

Laura Drynan from Bourgeon Capital. Go ahead, Laura. Laura Drynan - Bourgeon Capital: Thank you. I was hoping that you could give us a little bit more background regarding the decisions for the $1 share, at least $1 share by the end of 2014?

Well, we’re obviously going to pay the dividend this year, other than that there is not really a lot -- there is not much more I can say other than the fact that we’re going to issue at least $1 a share dividend. The Board will certainly consider any other potential options once we sort of get to end of quarter and see what our cash flow is and finish our budget for 2015 and everything else. But we wanted to sort of make an early announcement just to let our shareholders know that the $1 a share is definitely coming. And we will consider doing something more than that. But at this time, there is not really anything else I can say other than what we’ve been public. Was there anything more specific other than just general comments on that? Hello?

She had -- our next question is from Steve [Bilbo], a Shareholder. Go ahead, Steve.

Hi Steve.

Hi. How you doing? Good quarter. Any maybe progress since you announce the stock buyback authorization?

Well, we have not really focused on the stock buyback, I mean we put in place, we’re certainly interested in buying stock if the right opportunity present itself. But right now, we’re more focused on delivering some money back to the shareholders in the form of dividend but we’ll continue to look at the stock buyback and we have the powder ready to go so to speak, should a good opportunity present itself. As I am sure you can appreciate Steve with our trading volume and all the restrictions around stock buybacks in terms of the amount of shares you’ll have to buy and windows you can buy them in and all of that I think it’s more of an opportunistic driven strategy. So, if there is an opportunity for us to buy a good chunk of shares and what we think is an attractive price for the shareholders, then we will sort of address it on a case-by-case basis so to speak.

Okay. I certainly can appreciate that and glad you are kind of helping with the dividend. Can you speak a little bit more about the materiality of the Canada situation as far as -- I know you said that it’d be up fourth quarter ‘14 over the fourth quarter ‘13 but what about on a sequential basis?

On a sequential basis, I think well, probably if I compare -- and I am making some comments on this with obviously missing a lot of information. But I think that Q4 should definitely exceed Q4 of last year. But if we look at it as compared to Q3 and Q2, I would say operating income wise probably more like Q4 in that range -- excuse me Q3 as opposed to Q2 is what I meant to say. So, just to reiterate, I think as I’m sitting here today with the information I have today, I’m optimistic that Q4 will be a strong quarter as compared to Q4 of last year; it may or may not beat Q3 of this year, but if it doesn’t, I don’t think it will be too far off, will be my best guess, as I sitting here today.

Okay. And when you discuss those comps, you are talking about corporation as a whole, not just the Engineering division?

No, I’m talking about on a consolidated basis.

On a consolidated basis. Okay, alright. Thank you.

(Operator Instructions). We have no further questions.

Well, thanks again everyone for joining the call. And we’ll speak to you again in a couple of months. Thank you very much.

This concludes your conference call. You may disconnect your line at this time.