Mastech Holdings, Inc (MHH)

MHH 
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Mastech Holdings, Inc. (MHH)

Q4 2013 Earnings Conference Call

January 29, 2014 9:00 am ET

Executives

D. Kevin Horner - President and Chief Executive Officer

Jack Cronin - Financial Officer, Vice President of Finance and Administration

Jennifer Ford Lacey - General Council

Analysts

David Polonitza - AB Value Management

James Kahn - Oppenheimer

Michael Conti - Sidoti & Company

Presentation

Operator

Greetings, and welcome to the Mastech Holdings Fourth Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Jennifer Ford Lacey, Manager of Legal Affairs for Mastech Holdings. Thank you. You may begin.

Jennifer Ford Lacey

Thank you, operator, and welcome to Mastech's fourth 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 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 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 fourth quarter and full year 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 during the third quarter of 2013. 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 fourth quarter of 2013 totaled $28.5 million or approximately 21% higher than fourth quarter 2012 revenues and represented a slight improvement over the third quarter of 2013. This improvement was despite Q4 having one less billable day and a lower utilization factor due to the holiday season.

Our IT operations continued to see solid activity levels during the quarter as we grew our consultants on billing for a fourth consecutive quarter. Historically, that consultant growth is negatively impacted in Q4 by high year-end project completions and by activity disruptions due to the holiday season. Despite these negative historical trends, we were able to achieve positive growth in our consultant base during the fourth quarter of 2013 for only the second time in the past eight years.

Gross profit for the fourth quarter of 2013 totaled $5.4 million or 19.1% of revenues, compared to $4.5 million or 19.1% of revenues during the same period last year. Our gross profit expansion reflected an increase in billable consultants on assignments in the fourth quarter of 2013, compared to the corresponding 2012 period, as well as a higher average bill rate in the 2013 period. Our gross profit margin percentage was flat compared to the fourth quarter of 2012, as lower direct hire fees in 2013 were offset by slightly higher margins on new contract assignments.

SG&A expenses were $3.9 million in the fourth quarter of 2013, compared to $3.2 million in the fourth quarter a year earlier. SG&A expenses represented 13.7% of total revenues in the fourth quarter of 2013, compared to 13.8% of revenues in the corresponding quarter of 2012.

It should be noted however that SG&A expenses in the 2013 quarter included a $125,000 related to an appreciation bonus for our tenured employees and $132,000 of additional equity based compensation related to the early vesting of performance shares. Excluding these charges, SG&A expenses as a percent of revenues would have represented 12.8% of total revenues compared to 12.9% of revenues reported in our previous quarter, i.e., the third quarter of 2013.

Net income from continuing operations for the fourth quarter of 2013 was $961,000 or $0.22 per diluted share, compared to $744,000 or $0.18 per diluted share in the fourth quarter of 2012 and $999,000 or $0.23 per diluted share in the third quarter of 2013. The additional equity-based compensation and the higher discretionary bonus expense in Q4 2013 impacted earnings per share by $0.04. Also it should be noted that our earnings per share numbers for all periods have been recast to reflect the Company's recent five-for-four stock split.

Addressing our full year results, 2013 revenues totaled $106.9 million and represented an 18% increase over 2012 revenues of $90.8 million. Gross profits were $20.1 million or approximately $3 million greater than in 2012. Gross margins were 18.8% for the full year 2013 and were largely in line with last year's 18.9% gross margin performance.

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