Raycomm Runs Into Roadblock : Temporaries: Managers of an Encino provider of technical workers see reason for optimism despite a disastrous cancellation.
Although Raycomm Transworld Industries Inc. suffered major losses in the late-1980s, Chairman Robert Fain thought he had the Encino-based company on the road to recovery. He thought wrong.
Raycomm is the Kelly Girl of engineers, a provider of temporary technical personnel who mainly work in the aerospace and defense industries. Fain and his management team had already bolstered the company’s balance sheet, sold unprofitable assets and cut costs.
But last January, they could only watch helplessly as Defense Secretary Dick Cheney, citing mismanagement, canceled the A-12 Navy attack jet being developed by McDonnell Douglas Corp. and General Dynamics Corp. McDonnell Douglas had more than 300 of Raycomm’s people working on the plane, and the unexpected move wiped out millions of dollars of Raycomm’s annual revenue in a single day.
That decision, combined with the lingering recession and costs related to some employee disputes, left Raycomm with a $467,000 loss on revenue of $42.1 million for its fiscal year that ended March 31. It lost an additional $394,000 in the quarter that ended June 30.
The company had earned $729,000 in fiscal 1990 on revenue of $53.5 million, which Fain had hoped was the start of a sustained rebound from fiscal 1989, when Raycomm lost $2.7 million.
Fain, a stocky, forthright 61-year-old with gray, wiry hair, is instead again trying to pull Raycomm out of a hole. The company’s thinly traded stock hasn’t climbed above $2 a share in more than two years, and closed Monday at 62 1/2 cents in over-the-counter trading.
Still, he sees reason for optimism even in the McDonnell Douglas disaster. That case shows, he says, why Raycomm is valuable.
“McDonnell Douglas was able to terminate all the people” Raycomm provided “and not have any future obligations” such as severance pay or relocation costs, Fain said. “It was a significant indication of why we provide an advantage to industry.
“I am an optimist,” he added. “On the other hand, I get a dose of reality every day when I deal with cash-flow problems.”
Raycomm, through subsidiaries such as Mainstream Engineering Co. and a network of 20 offices nationwide, maintains a database of about 125,000 people who are available for temporary work. Currently, about 3,000 are actually working on jobs brought to them by Raycomm, a figure that Fain hopes will reach 5,000 by year’s end. Raycomm’s other customers include Boeing Co., Dow Chemical Co., Loral Corp., TRW Inc. and Hughes Aircraft Co., he said.
The Raycomm recruits work an average eight or nine months, although some have stayed on one job for up to five years, he said. They typically provide engineering and design skills that pay $16 an hour or more, to which Raycomm adds 18% to 30% extra to the client’s bill to cover the worker’s benefits and taxes and to cover its costs while, it is hoped, leaving a profit. Fain said the markup varies by worker and state.
Why would people work through Raycomm instead of getting full-time jobs? Lots of reasons, Fain said. Amid the sharp cutbacks in defense spending, some Raycomm recruits are laid-off workers who haven’t been able to find permanent work again. But many others don’t want to be tied down to one employer, are retired and looking for short-term work, are taking Raycomm jobs to see if they like a different city and so forth, Fain said.
There’s no question that Raycomm provides a needed service, as evidenced by the gaggle of competitors it faces. The temporary-help business, even for specialties such as technical personnel, is a fractured industry with dozens of players nationwide.
For instance, one of Raycomm’s customers, the Jet Propulsion Laboratory (JPL) in Pasadena, uses 14 other temporary-help agencies in addition to Raycomm. That intense rivalry also keeps a lid on prices and produces skimpy profit margins.
JPL uses solderers, machinists, engineers and quality-assurance technicians provided by Raycomm. The company gets high marks for being “very efficient and responsive,” said Jean Walker, who until recently headed the lab’s department for recruiting temporary help. “I never had complaints from their people--either that they were missing payrolls or anything.”
To be sure, Raycomm isn’t the only one in its field suffering because of defense cutbacks and the recession. CDI Corp. in Philadelphia, one of the nation’s largest providers of technical personnel with 1990 revenue of $921 million, saw its profit tumble 42% last year and it has been losing money this year.
But Fain isn’t one to point the finger only at outside forces. “Some I’d blame on the recession, some I’d blame on ourselves,” he said. “We were not marketing and sales driven. I saw that we were becoming dependent on too few customers . . . and we needed to be larger in size.”
Fain is convinced that Raycomm must reach a “critical mass”--become larger--to benefit in the long term. The idea is for Raycomm to serve substantially more customers without having to raise its overhead costs commensurately, enabling most of the increased revenue to drop to the bottom line. He’s also trying to enter more non-defense markets, such as oil and computers, to shelter Raycomm from the Pentagon budget cutters.
So Raycomm bought a competitor, Royalpar Industries Inc., in July for Raycomm stock valued then at about $13 million. It also acquired Flex-Staff Inc., a Texas provider of contract labor and payroll services, for $400,000 and an additional amount to be determined later by Flex-Staff’s performance.
Fain also wants Raycomm to start hustling. “One has to go out and get the business, you can’t wait for orders to come in,” he said. “We were order takers to a large extent for the last couple of years.”
Fain, who commutes each week between Encino and his home in Stamford, Conn., never set out to be head of Raycomm. He was a business consultant and investor who, with some partners, had invested $1 million in Raycomm in 1988 and then went on its board.
“It was apparent the company had deep financial problems and management concerns,” he said, which reflected a troubled 1986 merger between Raycomm Industries Inc. and Transworld Services Inc. that created the current Raycomm Transworld. “Everything was out of control, and they didn’t have a cohesive management team.”
So at the board’s request, Fain agreed to become chief executive, if only because his investment in Raycomm was becoming “a source of embarrassment.”
He’s ready to leave, however, if he can’t get Raycomm to perform. Fain said he “would be extraordinarily disappointed” if Raycomm is not steadily profitable beginning early next year. “If we’re not,” he said, “then they should change management.”
“That’s what we’re hired for, to make money for the stockholders,” he said. “A company can’t keep making excuses.”
