Rocco Campanelli - President and Chief Executive Officer Kevin Miller - Treasurer, Secretary and Chief Financial Officer

Thank you and welcome to the RCM Technologies' Second Quarter Earnings Conference Call. Mr. Rocco Campanelli will now begin.

Good morning, everyone. This is Rocco Campanelli and welcome to our second quarter 2015 earnings call. I am joined today by Kevin Miller, our Chief Financial Officer. Kevin will begin with a financial summary of the second quarter followed by my summary of the operating results. And then we’ll open it up for questions. Kevin?

Good morning, 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. Many of these beliefs, estimates, and assumptions are subject to rapid changes. 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. Thank you. I will now provide selected sectorial and other pertinent data in term of some prepared comments. So to the 13 weeks ended July 4, 2015, we had consolidated revenues of $45.286 million and a consolidated gross margin of 26.7%. Our engineering revenues were $19.827 million with a gross margin of 21.9%. Information technology was $14.859 million with a gross margin of 30.4%. So our specialty healthcare at $10.600 million in revenues and a gross margin of 30.5%. I have several prepared comments, so we’re obviously disappointed with our Q2 results. The primary reason for the decline in revenues, gross profit dollars and operating income is due to the previously disclosed and to a very large contract with our largest 2014 end client. It was our expectations towards the end of Q1 that this large contract would be renewed and we retain significant engineering staff in Canada and anticipation of serving this large expected contract renewal. Additionally, we had several other large contracts with our largest 2014 end client in the pipeline that we thought we had a strong chance of winning. We did not win those contracts either. Our revenues with this end client trying…

Thanks Kevin. As Kevin mentioned, we are disappointed with our performance in the second quarter. Although our specialty healthcare segment and IT segment performed well, our engineering segment’s revenue declined by 6.2 million in the second quarter of 2015 versus the second quarter of 2014. This decline was mainly due to the completion of the major contract in Canada. That being said, we are very pleased that our specialty healthcare segment achieved historic highs for both revenues and gross profit for the second consecutive quarter this year. We believe we’re also pleased to recently announce that we’re awarded contract for the Chicago school system nursing program which will be accretive to our fourth quarter revenues and gross profit. Our healthcare segment’s travel nursing program, health information management program, as well as our permanent placement programs continued to perform very well. Our IT consulting and solutions division performance was solid with a number of staffing placements at new clients and existing clients significantly higher than last year and the June and July placements were the best they have even been. Our IT CNS life science group just closed a major project that will be realized in the next three quarters and will add 15 consultants to the project. Our HR solutions group and Tech Finance East have had a solid second quarter and together with our Microsoft Solutions group; our Mid-Atlantic group and our Midwest group will perform well in the remainder of the year. As previously mentioned, our Canadian Energy Services Engineering group had a setback in the second quarter and that a major project came to an end and we lost several projects that were in our pipeline that we expected to win. These events significantly increased our utilization and required us to downsize staff and reallocate resources. We…

[Operator Instructions] And our first question is going to come from John Bero [ph] from BCM. Please go ahead.

Hey guys. Just can I go to this - the contract that ended, the way you described and if I understand it correctly that contract is isn’t completed, in other words the bigger contract overall?

It’s not, there was a second phase to that contract and unfortunately we didn’t win it.

But the group that you sort of worked under if you will that higher due is the persons you really go fired on that if I understand it correctly.

Yes.

So there were getting - they get replaced, can you pick up that work from the new people?

See what happened with that contract is they were replaced and our ultimate client wanted to have one contractor perform the remaining engineering design and construction of that contract, because then they become ultimately responsible for the project. RCM brought the engineering through revision zero of the entire project. All upgrades to that - to the engineering design will be performed and be the responsibility of another company that’s responsible for the entire engineering procurement and construction for the remaining - the reminder of the contract.

Got it, okay. And then as far as the former group that you worked with that’s like anyway you are going to intense upon because you have good relationships with these other contractors that are up there, so?

We do have good relationships. The issue with the go forward path much of the balance of plant work for this client was for one of the units. And the allocation of budget is for only one unit. So the next - ones that unit is complete, the government will allocate a budget for the remaining units. So much of the engineering on that one unit has already been completed.

Right, okay. So you’ll still be potentially eligible when they put those other contracts out for bid?

Yes, and we continue to do work on OM projects for operating units at that client. Actually we won $2 million worth of minor modifications work for existing, for the operating units that - at that client and we are wining other work on a regular basis, but not to the extent of the work that we won for the refurbishments.

Right, okay. And then the other client that you are hoping to win the certain contract, they are - as an entity they are at least as big as an entity as one that you lost?

Well, they were actually going to - go into in the refurbishment in the next 10 years of approximately 6 of their plants. So this becomes way one of the primary engineering contractors at this client and we are very optimistic that we are going to get a very big portion of the balance of plant engineering upgrades during the refurbishment of each plant.

Okay. Okay, thank you.

Since there are no further questions in queue - we just received a question from [indiscernible] who is a shareholder. Please go ahead.

Hey good morning.

Good morning, Steve.

Given therefore what’s happened in Canada, do you have - you saw the bench that’s recurring?

While, we’ve significantly reduced the bench, so you know - I mean we always have a little bit of a bench in Canada, but we significantly reduced our bench.

Great.

And hopefully we are going to be hiring a very large percentage of some of the people, some really talented engineers that we had, we hope to be hiring lot of back hopefully in the future.

Okay, looking to SG&A per staff, it seems to up quite a bit maybe 8% over 2014, what was that primarily for and what are the results getting out of that?

Well I can tell you, I can give you some color. I thought just deal with the 26 week. So we have SG&A increases about 1.86 million, so about 540,000 of that is selling expense, 400 of that is selling expenses increased - selling expense increases in our specialty healthcare group. These guys have been growing like crazy and we’re adding people and just adding recruiters mostly to handle all the work particularly in the travel group, the HIM group, we’ve been hiring more people to service account which is our accounts in why that are growing. So that’s just a lot of it in response to demand, some of it is in response to what we think is future demand. We’ll be adding a lot more SG&A in the third quarter, a lot more selling expenses in the third quarter to get ready for the Chicago contract. The other balance is about a 150 K is combined selling expense increases for IT and engineering group, some of that’s just year-over-year salary increases and in the other case just hiring new people to generate new work. We’ve seen a tremendous return already in the healthcare group. Our IT group continues to perform well, obviously the investments we’ve made in the selling and the engineering hasn’t shown up yet but we believe some of the selling cost investments we’ve made in the engineering will pay nice dividends down the road. Some of that is year towards the transmission and distribution work that Rocco alluded to in this comments. And we are - we signed a couple of contracts - couple of MSAs with some OEMs, we’ve gotten some new work out of that. We haven’t done a huge amount, the amounts work that we expect to get. And as Rocco mentioned,…

Okay, can you just touch a little bit on the recently announced small acquisition and how these benefitting?

Yeah Rocco, can you answer that then I can.

Sure. The acquisition that we just closed had been in business for at least 15 years and they’ve had a solid group of clients where they did transition and distribution upgrades for Substations and some engineering associated with protection and control which is a high demand service in transmission and distribution. And they’ve had a long standing relationship with four clients that we that RCM historically we never did work at. And one of the things that we focus on when we make small acquisitions is either we are going to bring additional service capability or additional clients to RCM. And one of the problems that this particular Substation Design System services had was the client would not give them any projects because of the limited number of engineers and designers they have. And now that RCM has a bigger bench and a bigger capability then SDS. We feel that these clients will award larger projects to SDS. So that was pretty much our plan and strategy for SDS.

Okay, so would you see the benefits to be immediate?

Yes, immediately closed about eight projects right after the acquisition. They are all fully built and we think that we can integrate them into our existing clients and they can integrate us into their existing clients. So they are immediately clipped on to our engineering group, they report to our Senior Vice President and they are very flexible group of engineers.

Okay, are you giving any guidance for operating income in the third quarter of range?

No, we are not. I mean we only got is we are giving is as we expect the second half of the year to be better than the first half of the year. So we’ll see how it goes, but certainly Q3 should be a lot better than Q2.

Okay, thanks.

And that’s with some seasonality that we have in our business.

And we do have another question from [indiscernible] from Market Edge. Please go ahead.

Good morning

Let me - I questions have been answered. Thank you.

And there are no further questions in queue at this time.

Well thank you everyone for your participation in the second quarter call. We look forward to having a much to better to see in the third quarter. And thank you and we’ll talk to you in the third quarter. Bye.