Mastech Digital, Inc (MHH)

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Mastech Holdings, Inc. (MHH)

Q3 2013 Results Earnings Call

October 23, 2013 9:00 AM ET


Jennifer Ford Lacey - Manager, Legal Affairs

Kevin Horner - Chief Executive Officer

Jack Cronin - Chief Financial Officer


Howard Rosencrans - Value Advisory

David Polonitza - AB Value Management

Brian Warner - Performance Capital



Greetings. And welcome to the Mastech Holdings Incorporated Q3 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, Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Holdings Incorporated. Thank you, Ms. Ford Lacey. You may begin.

Jennifer Ford Lacey

Thank you, Operator. And welcome to Mastech's third quarter 2013 conference call. If you have not yet received a copy of our earnings announcement, it can be obtained from our website at

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 in the markets in which we operate.

Without limiting the foregoing, the words believe, 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

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 third quarter 2013 results.

Jack Cronin

Thanks, Jen, and good morning all. First off, I’d like to remind everyone of the sale of our healthcare segment that occurred during the third quarter. Please note that our financial statements have been recast to include the healthcare business as discontinued operations for all periods including references and comparisons to prior years. Accordingly, all financial results discussed today relate to continuing operations unless specifically noted otherwise.

With that clarification out of the way, I’m pleased to report revenues for the third quarter of 2013 totaled $28.3 million or approximately 24% higher than third quarter 2012 revenues and represented an 8% improvement over the second quarter of 2013.

Our IT operations continued to see solid activity levels during the quarter as we grew our consultants on billing for the third consecutive quarter. Over the last nine months, our billable IT consultant base has increased at an annualized rate of over 20%.

Gross profit for the third quarter of 2013 totaled $5.3 million or 18.9% of revenues, compared to $4.4 million or 19.2% of revenues during the same period last year.

Our gross profit expansion reflected an increase in billable consultants on assignment in the third quarter of 2013, compared to the corresponding 2012 period, as well as an average bill rate that has been trending up over the past several quarters.

The slight gross margin decline reflects the continued shift towards our wholesale channel and a manageable increase in bench costs. With the remarketing of bench candidate at near all-time highs, we are willing to incur more bench costs to allow this remarketing effort to play out a little longer.

SG&A expenses were $3.7 million in the third quarter of 2013, compared to $3.5 million in the third quarter last year. SG&A expenses represented 12.9% of total revenues in the third quarter of 2013, compared to 15.4% of revenues in the corresponding period of 2012.

While we will continue to add productive capacity to both our sales and recruitment organizations, the operating leverage of our business model should allow us to continue to drive down SG&A expenses as a percent of total revenues as we grow our revenues in the future.

Net income from continuing operations for the third quarter of 2013 was $999,000 or $0.29 per diluted share, compared $561,000 or $0.17 per diluted share in the third quarter of 2012.

Discontinued operations during the third quarter of 2013 added additional net income of $481,000 or $0.14 per diluted share, compared to $40,000 or $0.01 per diluted share in the corresponding 2012 period. The results in the 2013 quarter included a net gain on the sale of our healthcare business of $422,000 or $0.13 per diluted share.

Addressing our financial position at September 30, 2013, we had cash balances on hand of $1.6 million, no outstanding debt and over $15 million of borrowing capacity under our existing credit facility.

During the quarter we repaid $2.6 million of bank debt with funds generated from both continuing and discontinued operations. While we continue to invest in operating working capital during the quarter to support our revenue expansion, a two-day improvement in our accounts receivable day sales outstanding measurement mitigated those investments in Q3.

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