Mastech Holdings, Inc (MHH)

MHH 
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Mastech Holdings, Inc. (MHH)

Q1 2013 Earnings Call

April 24, 2013 9:00 AM ET

Executives

Jenny Lacey – Manager, Legal Affairs and Compliance Officer

Jack Cronin – CFO, VP-Finance and Administration

Kevin Horner – President and CEO

Analysts

David Polonitza – AB Value Management

Presentation

Operator

Greetings, and welcome to the Mastech Holdings, Inc. first quarter 2013 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jenny Lacey, Manager of Legal Affairs from Mastech Holdings, Inc. Thank you.

Ms. Lacey, you may begin.

Jenny Lacey

Thank you, operator. And welcome to Mastech’s first quarter 2013 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at www.mastech.com.

With me on the call today are Kevin Horner, Mastech’s Chief Executive Officer, and Jack Cronin, our Chief Financial Officer.

I would like to remind everyone that statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements include our financial growth and liquidity projections, as well as statements about our plans, strategies, contentions, and beliefs concerning our business, cash flows, costs, and the markets in which we operate.

Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify certain forward-looking statements. These statements are based on information currently available to us and we assume no obligation to update these statements as circumstances change.

There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements, including those listed in the Company’s 2012 annual report on Form 10-K filed with the Securities and Exchange Commission and available on their website, at www.sec.gov.

As a reminder, we will not be providing guidance during this call nor will we provide guidance in any subsequent one-on-one meetings or calls.

I will now turn the call over to Jack for a review of our first quarter 2013 results.

Jack Cronin

Thanks, Jenny, and good morning, everyone. Revenues for the first quarter of 2013 totaled $27 million or approximately 10% higher than first quarter 2012 revenues and represented a 2% improvement over the fourth quarter of 2012. This should be noted that the 2013 quarter had one less billable day than last year’s corresponding period.

Our IT operations continue to see solid activity levels during much of the quarter and market conditions in our healthcare operations remain positive overall despite seasonal weakness in our surgical nursing business.

Gross profits for the first quarter of 2013 totaled $4.9 million or 18.1% of revenues compared to $4.5 million or 18.2% of revenues during the same period last year. Our gross profit expansion reflects an increase in billable consultants on assignment in the first quarter of 2013 compared to corresponding 2012 period. The slight gross margin decline was largely due to higher bench cost and front-end project initiation cost related to increases in our travel nurse business.

SG&A expenses were $3.9 million in the first quarter of 2013, which were slightly higher than last year’s level. SG&A expenses represent a 14.6% of total revenues in the first quarter of 2013 compared to 15.8% of revenues in the corresponding quarter of 2012. Much of our operating expense increase during the quarter was due to adding productive capacity to both ourselves and recruitment organizations.

Net income for the first quarter of 2013 was $575,000 or $0.17 per diluted share compared to $352,000 or $0.10 per diluted share for the first quarter of 2012.

Addressing our financial position, at March 31st, 2013, we had outstanding borrowings net of cash balances on hand of $2 million. This position is largely unchanged from yearend 2012 despite an investment in operating working capital of $714,000 during the quarter to support revenue growth. Additionally, borrowing capacity under our credit facility increased by about $700,000 during the quarter to close at $13.2 million as of March 31st, 2013.

I’ll now turn the call over to Kevin for his comments.

Kevin Horner

Thank you, Jack, and good morning all. I’m pleased to report another quarter of year-over-year top-line and bottom-line growth at Mastech. As you know, Q1 is historically a challenging quarter for our industry. Even so at Mastech, we were able to grow.

In addition to the financial growth already discussed, we grew our IT billable consultant base during the quarter by more than 4%. This increase in consultants on billing is our best first quarter performance since 2004.

In our healthcare segment, we grew revenues for the 11th consecutive quarter despite seasonal headwinds in our surgical nursing business. Operationally, we continue to see steady incremental improvements in our recruitment organization, and Scott Aicher, our new IT Business COO, is positively impacting how our sale and recruiting organizations are approaching opportunities.

As Jack mentioned already, Q1 had one less billable day and we did add staff to both our sales and recruiting organizations during the quarter. You will clearly see those growth investments in our first quarter financials.

My center of gravity is simple here. It’s hard not to like double-digit top-line revenue growth and a 70% increase in bottom-line earnings per share, particularly when it appears the market is growing at a much slower rate. I’d like to offer well-done to the team at Mastech and a thank you to our clients.

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