Mastech Holdings, Inc (MHH)

MHH 
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Mastech Holdings, Inc. (MHH)

Q2 2013 Earnings Conference Call

July 24, 2013 9:00 ET

Executives

Jennifer Ford Lacey – Manager of Legal Affairs

Jack Cronin – CFO, VP of Finance and Administration

Kevin Horner – President, CEO

Analysts

David Polonitza – AB Value Management

Howard Rosencrans – Value Advisory

Presentation

Operator

Greetings, and welcome to the Mastech Holdings Incorporated Second Quarter 2013 Earnings Conference 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, Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Holdings. Thank you, Ms. You may begin.

Jennifer Ford Lacey

Thank you, Operator, and welcome to Mastech's second 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, intentions 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 other 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 second quarter 2013 results.

Jack Cronin

Thanks, Jen, and good morning, everyone. Revenues for the second quarter of 2013 totaled $28.9 million, or approximately 14% higher than second quarter 2012 revenues, and represented a 7% improvement over the first quarter of 2013.

Our IT operations continued to see solid activity levels during the quarter but we grew our consultants on billing by 9% in Q2.

Market conditions in our healthcare operations were in line with last quarter from an activity standpoint. However, higher assignment ends in our traveling nursing business, negatively impacted revenues during the quarter.

Gross profits for the second quarter of 2013 totaled $5.5 million or 18.9% of revenues, compared to $4.8 million or 19.1% of revenues during the same period last year.

Despite being done 20 basis points from last year's margin performance, it's important to note that we were 80 basis points higher than the previously reported quarter.

Our gross profit expansion reflects an increase in billable consultants on assignment in the second quarter of 2013, compared to the corresponding 2012 period.

Our slight gross margin erosion was due to declines in our healthcare business; largely the result of an unfavorable service offering mix of revenues.

SG&A expenses were $4.2 million in the fourth quarter of 2012, which were was slightly higher than last year's $4.1 million.

SG&A expenses represented 14.5% of total revenues in the second quarter of 2013, compared to 16% of revenues in the corresponding 2012 period.

While we prudently added productive capacity to both our sales and recruitment organizations during the quarter, we continued to rationalize every aspect of our SG&A expense.

Accordingly, net income for the second quarter of 2013 was $789,000 or $0.23 per diluted share, compared to $458,000 or $0.14 per diluted share in the second quarter of 2012.

A growth in our financial position, at June 30th 2013, we had outstanding borrowings, net of cash balances on hand, of $2.9 million, and had borrowing capacity of approximately $14 million under our existing credit facility.

During the quarter, our primary source or our primary use of cash was for investments and for operating working capital to support our revenue expansion. In our view, that's a very healthy use of cash.

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

Kevin Horner

Thanks, Jack, and good morning all.

I am pleased to report another quarter of impressive year-over-year top line and bottom line growth at Mastech. As Jack had said on the year-over-year basis, we grew revenues by over 14% and increased diluted earnings per share by 64%.

More impressively, sequentially, our performance are equally inspired with revenue growth of 7% and an earnings per share improvement of 35%.

Additionally, we've expanded the number of our IT billable consultants by 9% for the quarter, which is one of our best performances over the last five years that the Company's been public.

I'd like to offer a well-done for the team at Mastech and, importantly, a thank you to our clients.

Operationally, we continue to see steady incremental improvements from both our sales and recruiting organizations. Our activity levels during Q2 were largely in line with the previous quarter, yet all of our key operational metrics, including assignment wins were materially up during the quarter. Clearly, we're starting to see payback from our focus investments to our optional recruiting organization.

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